GRANITE CONSTRUCTION INC 10-K

Item 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures   Based on their evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act) as required by paragraph (b) of Rule 13a-15 or Rule 15d-15 of the Exchange Act, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of December 31, 2021, the end of the period covered by this report. Management ’ s Report on Internal Control Over Financial Reporting Our management, including our principal executive and principal financial officers, is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined as a process designed by, or under the supervision of, the issuer’s principal executive and principal financial officers, or persons performing similar functions, and effected by the issuer’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP and includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the issuer; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets that could have a material effect on the financial statements. Our management, under the supervision and with the participation of our principal executive and principal financial officers, has conducted an evaluation of the effectiveness of our internal control over financial reporting, using the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2021. PricewaterhouseCoopers LLP, our independent registered public accounting firm, has audited the effectiveness of our internal control over financial reporting as of December 31, 2021. Their report is included in “Item 15. Exhibits and Financial Statement Schedules” under the heading “Report of Independent Registered Public Accounting Firm.” Remediation of Prior Year Material Weaknesses As disclosed in our Annual Reports on Form 10-K for the years ended December 31, 2019 and 2020, we identified control deficiencies that constituted material weaknesses, either individually or in the aggregate, and since 2020, Company management, with the assistance of outside consultants, has reviewed and revised our internal control over financial reporting in response to the material weaknesses. The actions we took to remediate the material weaknesses included the following:   • we implemented oversight, training and communication programs to reinforce: (1) our ethical standards and Code of Conduct across the Company, which emphasized, among other things, the purpose and availability of the anonymous whistleblower hotline, (2) the responsibilities and obligations of public company officers, (3) our cost forecasting processes and policies, including proper and contemporaneous documentation to support cost forecast adjustments, (4) the principles and requirements of each cost forecasting control and (5) reporting communication protocols for internal audit reports;   • we implemented additional internal controls related to cost forecasts including reviews from individuals who are independent of the operating group; and   • we took appropriate personnel actions, including separations, dismissals and changes in leadership and/or responsibilities and implemented other organizational changes, including changes in reporting structures. Management has concluded that the material weaknesses described in our Annual Reports on Form 10-K for the years ended December 31, 2019 and 2020 have been remediated because the applicable controls have operated for a sufficient period of time and management has concluded, through testing, that the controls operated effectively. Changes in Internal Control Over Financial Reporting There were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the quarter ended December 31, 2021. Item 9B. OTHER INFORMATION None. Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS None. 30 Table of Contents   PART III Certain information required by Part III is omitted from this report. We will file our definitive proxy statement for our 2022 Annual Meeting of Shareholders (the “Proxy Statement”) not later than 120 days after the end of the fiscal year covered by this report, and certain information included therein is incorporated herein by reference. Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE For information regarding our Directors, we direct you to the section entitled “Proposal 1 - Election and Ratification of Directors” in the Proxy Statement. For information regarding our Audit/Compliance Committee and our Audit/Compliance Committee’s financial expert, we direct you to the section entitled “Information about the Board of Directors and Corporate Governance - Committees of the Board - Audit/Compliance Committee” in the Proxy Statement. For information regarding our Code of Conduct, we direct you to the section entitled “Information about the Board of Directors and Corporate Governance - Code of Conduct” in the Proxy Statement. Information regarding our executive officers is contained in the section entitled “Executive Officers of the Registrant,” in Part I, Item I of this report. This information is incorporated herein by reference. Item 11. EXECUTIVE COMPENSATION For information regarding our Executive Compensation, we direct you to the section captioned “Executive and Director Compensation and Other Matters” in the Proxy Statement. This information is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS This information is located in the sections captioned “Stock Ownership of Certain Beneficial Owners Management” and “Equity Compensation Plan Information” in the Proxy Statement. This information is incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE You will find this information in the sections captioned “Transactions with Related Persons” and “Information about the Board of Directors and Corporate Governance - Director Independence” in the Proxy Statement. This information is incorporated herein by reference. Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES You will find this information in the section captioned “Independent Registered Public Accountants - Principal Accountant Fees and Services” in the Proxy Statement. This information is incorporated herein by reference.   31 Table of Contents   PART IV   Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES The following documents are filed as part of this report: 1. Financial Statements. The following consolidated financial statements and related documents are filed as part of this report:     Financial Statements Page Report of Independent Registered Public Accounting Firm F-1  to F-2 Consolidated Balance Sheets F-3 Consolidated Statements of Operations F-4 Consolidated Statements of Comprehensive Income (Loss) F-5 Consolidated Statements of Shareholders’ Equity F-6 Consolidated Statements of Cash Flows F-7 Notes to the Consolidated Financial Statements F-8  to F-34 Quarterly Financial Data (unaudited) F-34 2. Financial Statement Schedules. Schedules are omitted because they are not required or applicable, or the required information is included in the Financial Statements or related notes. 3. Exhibits . The Exhibits listed in the accompanying Exhibit Index are filed or incorporated by reference as part of, or furnished with, this report.   32 Table of Contents   INDEX TO 10-K EXHIBITS   Exhibit No.   Exhibit Description 2.1 * Agreement and Plan of Merger by and among Granite Construction Incorporated, Layne Christensen Company and Lowercase Merger Sub Incorporated, dated as of February 13, 2018 [Exhibit 2.1 to the Company’s Form 8-K filed on February 14, 2018] 3.1 *  Certificate of Incorporation of Granite Construction Incorporated, as amended [Exhibit 3.1.b to the Company’s Form 10-Q for the quarter ended June 30, 2006] 3.2  * Amended Bylaws of Granite Construction Incorporated [Exhibit 3.1 to the Company’s Form 8-K filed on November 15, 2011] 4.1 * Indenture (including Form of Note) with respect to Granite Construction Incorporated’s 2.75% Convertible Senior Notes due 2024, dated November 1, 2019, by and between Granite Construction Incorporated and Wilmington Trust, National Association, as trustee [Exhibit 4.1 to the Company’s Form 8-K filed on November 1, 2019] 4.2 * Description of Common Stock [Exhibit 4.2 to the Company’s Form 10-K for the year ended December 31, 2019] 10.1 *** Key Management Deferred Compensation Plan II, as amended and restated [Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended March 31, 2010] 10.2 ***  Form of Amended and Restated Director and Officer Indemnification Agreement [Exhibit 10.10 to the Company’s Form 10-K for the year ended December 31, 2002] 10.3 *** Granite Construction Incorporated Annual Incentive Plan effective January 1, 2010, as amended [Exhibit 10.22 to the Company’s Form 10-K for the year ended December 31, 2011] 10.4 *** Amendment No. 2 to the Granite Construction Incorporated Annual Incentive Plan effective January 1, 2012 [Exhibit 10.23 to the Company’s Form 10-K for the year ended December 31, 2011] 10.5 *** Granite Construction Incorporated Long Term Incentive Plan effective January 1, 2010, as amended [Exhibit 10.24 to the Company’s Form 10-K for the year ended December 31, 2011] 10.6 *** Amendment No. 2 to the Granite Construction Incorporated Long Term Incentive Plan effective January 1, 2012 [Exhibit 10.25 to the Company’s Form 10-K for the year ended December 31, 2011] 10.7 *** Granite Construction Incorporated 2012 Equity Incentive Plan [Exhibit 10.1 to the Company’s Form 8-K filed on May 25, 2012] 10.8 *** Form of Non-Employee Director Restricted Stock Unit Agreement effective May 22, 2012 (2012 Equity Incentive Plan) [Exhibit 10.2 to the Company’s Form 8-K filed on May 25, 2012] 10.9 *** Granite Construction Incorporated NEO LTIP Awards Form of Restricted Stock Unit Agreement (Vesting on Date of Grant) (2012 Equity Incentive Plan) [Exhibit 10.30 to the Company's Form 10-K for the year ended December 31, 2012] 10.10 *** Granite Construction Incorporated Form of Restricted Stock Unit Agreement (3 Year Vesting Schedule) (2012 Equity Incentive Plan) [Exhibit 10.31 to the Company's Form 10-K for the year ended December 31, 2012]   33 Table of Contents   10.11 * Third Amended and Restated Credit Agreement, dated May 31, 2018 by and among Granite Construction Incorporated, Granite Construction Company, GILC Incorporated, the lenders party thereto and Bank of America, N.A., as Administrative Agent, Collateral Agent, Swing Line Lender, and L/C Issuer [Exhibit 10.1 to the Company’s Form 8-K filed on June 5, 2018] 10.12 * Third Amended and Restated Guaranty Agreement, dated May 31, 2018, by and among Granite Construction Incorporated, the guarantors party thereto and Bank of America, N.A., as Administrative Agent [Exhibit 10.2 to the Company’s Form 8-K filed on June 5, 2018] 10.13 * Amendment No 1 to Third Amended and Restated Credit Agreement, dated July 29, 2019, by and among the Company, Granite Construction Company, and GILC Incorporated, as borrowers, Bank of America, N.A., as Administrative Agent, and the lenders party thereto [Exhibit 10.1 to the Company’s Form 8-K filed on August 2, 2019] 10.14 * Amendment No. 2 to Third Amended and Restated Credit Agreement, dated October 29, 2019, by and among the Company, Granite Construction Company, and GILC Incorporated, as borrowers, Bank of America, N.A., as Administrative Agent, and the lenders party thereto [Exhibit 10.1 to the Company’s Form 8-K filed on October 30, 2019] 10.15 * Form of Bond Hedge Confirmation [Exhibit 10.1 to the Company’s Form 8-K filed on November 1, 2019] 10.16 * Form of Warrant Confirmation [Exhibit 10.2 to the Company’s Form 8-K filed on November 1, 2019] 10.17 * Amendment No. 3 to Third Amended and Restated Credit Agreement, dated March 26, 2020, by and among the Company, Granite Construction Company, and GILC Incorporated, as borrowers, Bank of America, N.A., as Administrative Agent, and the lenders party thereto [Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended March 31, 2020] 10.18 *** Executive Retention and Severance Plan III and Participation Agreement [Exhibit 10.1 to the Company's Form 8-K filed on March 30, 2020] 10.19 *** Long Term Incentive Plan, effective January 1, 2020 [Exhibit 10.2 to the Company's Form 8-K filed on March 30, 2020] 10.20 *** LTIP Award Agreement (2020 Long Term Incentive Plan) [Exhibit 10.3 to the Company's Form 8-K filed on March 30, 2020] 10.21 * Amendment No. 4 to Third Amended and Restated Credit Agreement, dated June 19, 2020, by and among the Company, Granite Construction Company, and GILC Incorporated, as borrowers, Bank of America, N.A., as Administrative Agent, and the lenders party thereto [Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended June 30, 2020] 10.22 *** Retirement and Transition Agreement dated October 20, 2020 by and between the Company and Mr. Roberts [Exhibit 10.1 to the Company’s Form 8-K filed on October 23, 2020] 10.23 * Amendment No. 5 to Third Amended and Restated Credit Agreement, dated November 12, 2020, by and among the Company and certain subsidiaries of the Company, each as borrowers, the guarantors, the lenders party thereto and Bank of America, N.A., as administrative agent [Exhibit 10.24 to the Company’s Form 10-K for the year ended December 31, 2020] 10.24 * Amendment No. 6 to Third Amended and Restated Credit Agreement, dated February 19, 2021, by and among the Company and certain subsidiaries of the Company, each as borrowers, the guarantors, the lenders party thereto and Bank of America, N.A., as administrative agent [Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended March 31, 2021] 10.25 * Stipulation and Agreement of Settlement, dated as of April 29, 2021 [Exhibit 10.1 to the Company’s Form 8-K filed on April 30, 2021] 10.26 *** Granite Construction Incorporated 2021 Equity Incentive Plan [Exhibit 10.2 to the Company’s Form 8-K filed on June 4, 2021] 10.27 *** Form of Non-Employee Director Restricted Stock Unit Agreement (2021 Equity Incentive Plan) [Exhibit 10.3 to the Company’s Form 8-K filed on June 4, 2021] 10.28 *** Form of Employee Service Award Restricted Stock Unit Agreement (2021 Equity Incentive Plan) [Exhibit 10.4 to the Company’s Form 8-K filed on June 4, 2021] 10.29 *** Form of Employee TSR Award Restricted Stock Unit Agreement (2021 Equity Incentive Plan) [Exhibit 10.5 to the Company’s Form 8-K filed on June 4, 2021] 10.30 *** Separation and Transition Agreement, dated November 14, 2021 by and between the Company and Ms. Desai [Exhibit 10.1 to the Company’s Form 8-K filed on November 15, 2021]   34 Table of Contents   Exhibit No.   Exhibit Description 21 † List of Subsidiaries of Granite Construction Incorporated 23.1 † Consent of PricewaterhouseCoopers LLP   31.1 † Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 † Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32 †† Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 95 † Mine Safety Disclosure 101.INS  † Inline XBRL Instance Document  101.SCH  † Inline XBRL Taxonomy Extension Schema  101.CAL  † Inline XBRL Taxonomy Extension Calculation Linkbase  101.DEF  † Inline XBRL Taxonomy Extension Definition Linkbase 101.LAB  † Inline XBRL Taxonomy Extension Label Linkbase  101.PRE † Inline XBRL Taxonomy Extension Presentation Linkbase  104 † The cover page from the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, formatted in Inline XBRL (included within the Exhibit 101 attachments).   * Incorporated by reference ** Compensatory plan or management contract † Filed herewith †† Furnished herewith     35 Table of Contents   SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.         GRANITE CONSTRUCTION INCORPORATED         By: /s/ Elizabeth L. Curtis     Elizabeth L. Curtis     Executive Vice President and Chief Financial Officer (Principal Financial Officer) Date: February 25, 2022 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities indicated and on the dates indicated. /s/ Michael F. McNally   February 25, 2022 Michael F. McNally, Chairman of the Board and Director     /s/ Kyle T. Larkin   February 25, 2022 Kyle T. Larkin, President, Chief Executive Officer and Director (Principal Executive Officer)     /s/ Elizabeth L. Curtis   February 25, 2022 Elizabeth L. Curtis, Executive Vice President and Chief Financial Officer (Principal Financial Officer)     /s/ Staci M. Woolsey   February 25, 2022 Staci M. Woolsey, Chief Accounting Officer (Principal Accounting Officer)     /s/ Louis E. Caldera   February 25, 2022 Louis E. Caldera, Director     /s/ Molly C. Campbell   February 25, 2022 Molly C. Campbell, Director     /s/ David C. Darnell   February 25, 2022 David C. Darnell, Director     /s/ Patricia D. Galloway   February 25, 2022 Patricia D. Galloway, Director     /s/ David H. Kelsey   February 25, 2022 David H. Kelsey, Director     /s/ Alan P. Krusi   February 25, 2022 Alan P. Krusi, Director     /s/ Jeffrey J. Lyash   February 25, 2022 Jeffrey J. Lyash, Director     /s/ Celeste B. Mastin   February 25, 2022 Celeste B. Mastin, Director     /s/ Laura M. Mullen   February 25, 2022 Laura M. Mullen, Director     /s/ Gaddi H. Vasquez    February 25, 2022 Gaddi H. Vasquez, Director       36 Table of Contents       Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Granite Construction Incorporated Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Granite Construction Incorporated and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, of comprehensive income (loss), of shareholders’ equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Change in Accounting Principle As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. F-1 Table of Contents   Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Revenue Recognition - Estimates of the Forecasted Revenue and Costs to Complete for Multi-Year Fixed Price Contracts in the Construction Segment, and Revisions in those Estimate s As described in Notes 1, 3, and 4 to the consolidated financial statements, the revenue for the Construction segment for the year ended December 31, 2021 was $2,602 million, a portion of which related to multi-year fixed price contracts inclusive of unconsolidated joint venture projects. Revenue in the Construction segment is ordinarily recognized over time as control is transferred to the customers by measuring the progress toward complete satisfaction of the performance obligation(s) using an input (i.e., cost to cost) method. Under the cost to cost method, costs incurred to-date are generally the best depiction of transfer of control. The accuracy of the Company’s revenue and profit recognition in a given period depends on the accuracy of management’s estimates of the forecasted revenue and cost to complete each project. Cost estimates for all significant projects use a detailed bottom up approach in which there are a number of factors that can contribute to changes in estimates of contract cost and profitability. Provisions for losses are recognized at the uncompleted performance obligation level for the amount of total estimated losses in the period that evidence indicates that the estimated total cost of a performance obligation exceeds its estimated total revenue. For the year ended December 31, 2021, revisions in estimates, which had an impact of $5 million or more on gross profit on the individual project, resulted in a net decrease to project profitability of $71 million. The estimates of transaction price and costs to complete can vary significantly in the normal course of business as projects progress, circumstances develop and evolve, and uncertainties are resolved. When the Company experiences significant revisions in estimates, management undergoes a process that includes reviewing the nature of the changes to ensure that no material amounts should have been recorded in a prior period rather than as a revision in estimate for the current period. Management generally uses the cumulative catch-up method for changes to the transaction price that are part of a single performance obligation. Under this method, revisions in estimates are accounted for in their entirety in the period of change. The principal considerations for our determination that performing procedures relating to estimates of the forecasted revenue and costs to complete for multi-year fixed price contracts in the Construction segment, and revisions in those estimates, is a critical audit matter are (i) the significant judgment by management in forecasting project revenue and costs to complete; and (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to the estimates of forecasted revenue and costs to complete for multi-year fixed price contracts in the Construction segment, and revisions in those estimates. As disclosed by management, a material weakness previously existed during the year related to this matter. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls over estimates of forecasted revenue and costs to complete for multi-year fixed price contracts in the Construction segment, and revisions in those estimates. These procedures also included, among others, for a sample of contracts, evaluating and testing management’s process for determining the estimates of forecasted revenue and costs to complete, which included (i) assessing management’s ability to reasonably estimate the forecasted revenue and costs to complete by evaluating management’s methodologies and assessing the consistency of management’s approach over the life of the contract, and (ii) evaluating the timely identification of circumstances that may warrant a modification to estimated forecasted revenue and costs to complete. /s/ PricewaterhouseCoopers LLP Houston, Texas February 25, 2022 We have served as the Company’s auditor since 1982. F-2 Table of Contents     GRANITE CONSTRUCTION INCORPORATED CONSOLIDATED BALANCE SHEETS (dollars in thousands, except share and per share data) December 31,     2021       2020   ASSETS                 Current assets                 Cash and cash equivalents ($ 92,783 and $ 74,819 related to consolidated construction joint ventures (“CCJVs”))   $ 395,647     $ 425,292   Receivables, net ($ 49,534 and $ 56,147 related to CCJVs)     464,588       437,558   Contract assets ($ 50,054 and $ 33,838 related to CCJVs)     145,437       132,097   Inventories     61,965       62,471   Equity in construction joint ventures     189,911       188,798   Other current assets ($ 8,091 and $ 13,252 related to CCJVs)     177,210       37,767   Current assets held-for-sale     392,641       171,263   Total current assets     1,827,399       1,455,246   Property and equipment, net ($ 14,920 and $ 23,704 related to CCJVs)     433,504       421,149   Long-term marketable securities     15,600       5,200   Investments in affiliates     23,368       27,637   Goodwill     53,715       53,715   Right of use assets     49,312       52,987   Deferred income taxes, net     24,141       43,111   Other noncurrent assets     67,888       68,847   Noncurrent assets held-for-sale     —       252,104   Total assets   $ 2,494,927     $ 2,379,996                     LIABILITIES AND EQUITY                 Current liabilities                 Current maturities of long-term debt   $ 8,727     $ 8,278   Accounts payable ($ 55,012 and $ 53,033 related to CCJVs)     324,313       321,347   Contract liabilities ($ 69,328 and $ 79,777 related to CCJVs)     200,041       162,925   Accrued expenses and other current liabilities ($ 5,514 and $ 4,410 related to CCJVs)     452,829       381,747   Current liabilities held-for-sale     83,408       68,959   Total current liabilities     1,069,318       943,256   Long-term debt     331,191       330,522   Long-term lease liabilities     32,928       39,816   Deferred income taxes, net     1,856       2,022   Other long-term liabilities     64,071       62,420   Long-term liabilities held-for-sale     —       10,350   Commitments and contingencies (see Note 20)                     Equity                 Preferred stock, $ 0.01 par value, authorized 3,000,000 shares, none outstanding     —       —   Common stock, $ 0.01 par value, authorized 150,000,000 shares; issued and outstanding: 45,840,260 shares as of December 31, 2021 and 45,668,541 shares as of December 31, 2020     458       457   Additional paid-in capital     559,752       555,407   Accumulated other comprehensive loss     ( 3,359 )     ( 5,035 ) Retained earnings     410,831       424,835   Total Granite Construction Incorporated shareholders’ equity     967,682       975,664   Non-controlling interests     27,881       15,946   Total equity     995,563       991,610   Total liabilities and equity   $ 2,494,927     $ 2,379,996   The accompanying notes are an integral part of these consolidated financial statements.   F-3 Table of Contents     GRANITE CONSTRUCTION INCORPORATED CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands, except share and per share data) Years Ended December 31,   2021     2020     2019   Revenue                         Construction   $ 2,602,306     $ 2,764,094     $ 2,575,791   Materials     407,747       364,785       339,086   Total revenue     3,010,053       3,128,879       2,914,877   Cost of revenue                         Construction     2,353,956       2,522,650       2,429,319   Materials     350,541       301,576       295,773   Total cost of revenue     2,704,497       2,824,226       2,725,092   Gross profit     305,556       304,653       189,785   Selling, general and administrative expenses     243,083       252,879       238,147   Other costs (see Note 1)     95,155       36,964       6,735   Gain on sales of property and equipment, net (see Note 11)     ( 33,781 )     ( 4,925 )     ( 13,373 ) Operating income (loss)     1,099       19,735       ( 41,724 ) Other (income) expense                         Interest income     ( 1,178 )     ( 3,017 )     ( 7,256 ) Interest expense     20,282       23,866       18,052   Equity in income of affiliates, net     ( 3,465 )     ( 5,191 )     ( 6,991 ) Other income, net     ( 5,044 )     ( 4,068 )     ( 5,305 ) Total other (income) expense, net     10,595       11,590       ( 1,500 ) Income (loss) from continuing operations before provision for (benefit from) income taxes     ( 9,496 )     8,145       ( 40,224 ) Provision for (benefit from) income taxes on continuing operations     ( 1,237 )     9,927       ( 12,288 ) Net income (loss) from continuing operations     ( 8,259 )     ( 1,782 )     ( 27,936 ) Net income (loss) from discontinued operations     10,673       ( 164,399 )     ( 28,766 ) Net income (loss)     2,414       ( 166,181 )     ( 56,702 ) Amount attributable to non-controlling interests from continuing operations     7,682       21,064       ( 3,489 ) Net income (loss) attributable to Granite Construction Incorporated from continuing operations     ( 577 )     19,282       ( 31,425 ) Net income (loss) attributable to Granite Construction Incorporated from discontinued operations     10,673       ( 164,399 )     ( 28,766 ) Net income (loss) attributable to Granite Construction Incorporated   $ 10,096     $ ( 145,117 )   $ ( 60,191 )                           Net income (loss) per share attributable to common shareholders (see Note 18):                         Basic continuing operations per share   $ ( 0.01 )   $ 0.42     $ ( 0.67 ) Basic discontinued operations per share     0.23       ( 3.60 )     ( 0.62 ) Basic earnings per share   $ 0.22     $ ( 3.18 )   $ ( 1.29 )                           Diluted continuing operations per share   $ ( 0.01 )   $ 0.42     $ ( 0.67 ) Diluted discontinued operations per share     0.23       ( 3.56 )     ( 0.62 ) Diluted earnings per share   $ 0.22     $ ( 3.14 )   $ ( 1.29 )                           Weighted average shares outstanding:                         Basic     45,788       45,614       46,559   Diluted     45,788       46,203       46,559   The accompanying notes are an integral part of these consolidated financial statements. F-4 Table of Contents     GRANITE CONSTRUCTION INCORPORATED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) Years Ended December 31,     2021       2020       2019   Net income (loss)   $ 2,414     $ ( 166,181 )   $ ( 56,702 ) Other comprehensive income (loss), net of tax:                         Net unrealized gain (loss) on derivatives   $ ( 108 )   $ ( 4,155 )   $ ( 2,963 ) Less: reclassification for net (gains) losses included in interest expense     2,131       1,816       ( 323 ) Net change   $ 2,023     $ ( 2,339 )   $ ( 3,286 ) Foreign currency translation adjustments, net     ( 347 )     ( 51 )     1,390   Other comprehensive income (loss)   $ 1,676     $ ( 2,390 )   $ ( 1,896 ) Comprehensive income (loss)   $ 4,090     $ ( 168,571 )   $ ( 58,598 ) Non-controlling interests in comprehensive income     7,682       21,064       ( 3,489 ) Comprehensive income (loss) attributable to Granite Construction Incorporated   $ 11,772     $ ( 147,507 )   $ ( 62,087 ) The accompanying notes are an integral part of these consolidated financial statements.   F-5 Table of Contents   GRANITE CONSTRUCTION INCORPORATED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (in thousands, except share data)     Outstanding Shares     Common Stock     Additional Paid-In Capital     Accumulated Other Comprehensive Income (Loss)     Retained Earnings     Total Granite Shareholders’ Equity     Non-controlling Interests     Total Equity   Balances at December 31, 2018     46,665,889     $ 467     $ 564,559     $ ( 749 )   $ 679,453     $ 1,243,730     $ 45,624     $ 1,289,354   Net income (loss)     —       —       —       —       ( 60,191 )     ( 60,191 )     3,489       ( 56,702 ) Other comprehensive loss     —       —       —       ( 1,896 )     —       ( 1,896 )     —       ( 1,896 ) Restricted stock units (“RSU”s) vested     262,859       3       ( 3 )     —       —       —       —       —   Stock-based compensation expense     —       —       10,213       —       —       10,213       —       10,213   Common stock purchased for employee tax withholding for vested RSUs     ( 91,591 )     ( 1 )     ( 4,066 )     —       —       ( 4,067 )     —       ( 4,067 ) Shares repurchased and retired     ( 1,360,000 )     ( 13 )     ( 32,821 )     —       —       ( 32,834 )     —       ( 32,834 ) Dividends on common stock ($ 0.52 per share)     —       —       —       —       ( 24,166 )     ( 24,166 )     —       ( 24,166 ) Effect of adopting Accounting Standards Codification (“ASC”) Topic 842     —       —       —       —       ( 539 )     ( 539 )     —       ( 539 ) Sale of common stock warrant, net     —       —       10,444       —       —       10,444       —       10,444   Transactions with non-controlling interests, net     —       —       —       —       —       —       ( 12,168 )     ( 12,168 ) Other     26,648       —       981       —       ( 204 )     777       —       777   Balances at December 31, 2019     45,503,805       456       549,307       ( 2,645 )     594,353       1,141,471       36,945       1,178,416   Net loss     —       —       —       —       ( 145,117 )     ( 145,117 )     ( 21,064 )     ( 166,181 ) Other comprehensive loss     —       —       —       ( 2,390 )     —       ( 2,390 )     —       ( 2,390 ) RSUs vested     191,171       2       ( 2 )     —       —       —       —       —   Stock-based compensation expense     —       —       6,377       —       —       6,377       —       6,377   Common stock purchased for employee tax withholding for vested RSUs     ( 60,604 )     ( 1 )     ( 884 )     —       —       ( 885 )     —       ( 885 ) Dividends on common stock ($ 0.52 per share)     —       —       —       —       ( 23,734 )     ( 23,734 )     —       ( 23,734 ) Effect of adopting ASC Topic 326     —       —       —       —       ( 366 )     ( 366 )     —       ( 366 ) Transactions with non-controlling interests, net     —       —       —       —       —       —       65       65   Other     34,169       —       609       —       ( 301 )     308       —       308   Balances at December 31, 2020     45,668,541       457       555,407       ( 5,035 )     424,835       975,664       15,946       991,610   Net income (loss)     —       —       —       —       10,096       10,096       ( 7,682 )     2,414   Other comprehensive income     —       —       —       1,676       —       1,676       —       1,676   RSUs vested     235,234       2       ( 2 )     —       —       —       —       —   Stock-based compensation expense     —       —       6,407       —       —       6,407       —       6,407   Common stock purchased for employee tax withholding for vested RSUs     ( 68,580 )     ( 1 )     ( 2,729 )     —       —       ( 2,730 )     —       ( 2,730 ) Dividends on common stock ($ 0.52 per share)     —       —       —       —       ( 23,826 )     ( 23,826 )     —       ( 23,826 ) Transactions with non-controlling interests, net     —       —       —       —       —       —       19,617       19,617   Other     5,065       —       669       —       ( 274 )     395       —       395   Balances at December 31, 2021     45,840,260     $ 458     $ 559,752     $ ( 3,359 )   $ 410,831     $ 967,682     $ 27,881     $ 995,563   The accompanying notes are an integral part of these consolidated financial statements. F-6 Table of Contents     GRANITE CONSTRUCTION INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS ( in thousands ) Years Ended December 31,   2021     2020     2019   Operating activities                         Net income (loss)   $ 2,414     $ ( 166,181 )   $ ( 56,702 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities:                         Depreciation, depletion and amortization     109,050       112,958       121,993   Amortization related to the 2.75 % Convertible Notes (see Note 14)     9,448       8,693       1,425   Gain on sales of property and equipment, net (see Note 11)     ( 66,439 )     ( 6,930 )     ( 18,703 ) Deferred income taxes     16,600       8,817       ( 22,924 ) Stock-based compensation     6,407       6,377       10,213   Equity in net loss from unconsolidated joint ventures     765       51,486       120,632   Net income from affiliates     ( 12,586 )     ( 8,783 )     ( 11,454 ) Non-cash impairment charges (see Note 2)     —       156,690       —   Other non-cash adjustments     —       1,729       4,020   Changes in assets and liabilities:                         Receivables     ( 11,317 )     6,840       ( 58,947 ) Contract assets, net     12,046       123,670       ( 40,084 ) Inventories     774       5,136       380   Contributions to unconsolidated construction joint ventures     ( 61,780 )     ( 50,878 )     ( 83,765 ) Distributions from unconsolidated construction joint ventures and affiliates     22,004       11,065       19,064   Deposit for legal settlement (see Note 20)     ( 129,000 )     —       —   Other assets, net     ( 11,969 )     ( 1,035 )     ( 3,928 ) Accounts payable     7,396       ( 40,999 )     140,027   Accrual for legal settlement (see Note 20)     129,000       —       —   Accrued expenses and other liabilities, net     ( 882 )     49,805       ( 9,809 ) Net cash provided by operating activities   $ 21,931     $ 268,460     $ 111,438   Investing activities                         Purchases of marketable securities     ( 10,000 )     ( 9,996 )     —   Maturities of marketable securities     —       10,000       30,000   Proceeds from called marketable securities     —       24,996       5,000   Purchases of property and equipment     ( 94,810 )     ( 93,253 )     ( 106,828 ) Proceeds from sales of property and equipment (see Note 11)     94,802       16,702       37,091   Cash paid to purchase business     —       —       ( 6,227 ) Proceeds from the sale of a business     —       5,000       —   Issuance of notes receivable, net of collection     ( 11,470 )     5,289       721   Other investing activities, net     —       —       ( 79 ) Net cash used in investing activities   $ ( 21,478 )   $ ( 41,262 )   $ ( 40,322 ) Financing activities                         Proceeds from debt     —       50,000       105,574   Proceeds from issuance of 2.75% Convertible Notes     —       —       230,000   Proceeds from issuance of warrants     —       —       11,500   Purchase of Hedge Option, net     —       —       ( 37,375 ) Debt principal repayments     ( 8,922 )     ( 83,433 )     ( 313,150 ) Cash dividends paid     ( 23,804 )     ( 23,712 )     ( 24,316 ) Repurchases of common stock     ( 2,730 )     ( 885 )     ( 36,900 ) Contributions from non-controlling partners     20,126       11,875       68   Distributions to non-controlling partners     ( 9,514 )     ( 11,810 )     ( 12,235 ) Debt issuance costs     —       —       ( 6,507 ) Other financing activities, net     398       307       1,704   Net cash used in financing activities   $ ( 24,446 )   $ ( 57,658 )   $ ( 81,637 ) Net increase (decrease) in cash, cash equivalents and restricted cash     ( 23,993 )     169,540       ( 10,521 ) Cash, cash equivalents and $ 1,512 , $ 5,835 and $ 5,825 in restricted cash at beginning of period     437,648       268,108       278,629   Cash, cash equivalents and $ 1,512 , $ 1,512 and $ 5,835 in restricted cash at end of period   $ 413,655     $ 437,648     $ 268,108   Less: Cash, cash equivalents and $ 1,512 , $ 1,512 and $ 5,835 in restricted cash included in current assets held-for-sale at end of period     ( 18,008 )     ( 12,356 )     ( 15,763 ) Cash and cash equivalents of continuing operations at end of period   $ 395,647     $ 425,292     $ 252,345                             Supplementary Information                         Right of use assets obtained in exchange for lease obligations   $ 23,379     $ 10,000     $ 25,360   Cash paid for operating lease liabilities   $ 23,203     $ 21,654     $ 18,660   Cash paid during the period for:                         Interest   $ 14,593     $ 18,753     $ 17,322   Income taxes   $ 2,066     $ 2,805     $ 11,898   Other non-cash operating activities:                         Performance guarantees   $ ( 167 )   $ 350     $ ( 6,284 ) Non-cash investing and financing activities:                         Reclassification of the equity portion of the 2.75% Convertible Notes from debt to equity (See Note 14)   $ —     $ —     $ 37,375   RSUs issued, net of forfeitures   $ 8,299     $ 4,449     $ 8,596   Dividends declared but not paid   $ 5,959     $ 5,937     $ 5,915   Contributions from non-controlling partners   $ 9,006     $ —     $ —   The accompanying notes are an integral part of these consolidated financial statements. F-7 Table of Contents   GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS   1. Summary of Significant Accounting Policies Description of Business : Granite Construction Incorporated is one of the largest diversified infrastructure companies in the United States, engaged in infrastructure projects including the construction of streets, roads, highways, mass transit facilities, airport infrastructure, bridges, dams, power-related facilities, utilities, tunnels and other infrastructure-related projects, site preparation, mining services, and infrastructure services for residential development, energy development, commercial and industrial sites, and other facilities, as well as construction management professional services. Our continuing operations have offices located in Alaska, Arizona, California, Colorado, Florida, Guam, Illinois, Nevada, Texas, Utah and Washington. Unless otherwise indicated, the terms “we,” “us,” “our,” “Company” and “Granite” refer to Granite Construction Incorporated and its wholly-owned and consolidated subsidiaries. During the fourth quarter of 2021, the Company updated its strategy to focus on its core business capabilities, to leverage its current geographic based home markets in the civil construction and materials business and to target expansion based upon that combined strategy. Through our strategic analysis, it was determined that the end markets and geographic structure of the former Water and Mineral Services operating group (“WMS”) did not align with the Company’s new strategy and the Board of Directors approved a plan to sell these businesses within the next twelve months. As a result of these actions, we classified WMS as held-for-sale in the consolidated balance sheets and as discontinued operations in the consolidated statements of operations as of and for the year ended December 31, 2021 and applied these changes retrospectively for all other periods presented. See Note 2 for WMS financial information, which has been excluded from all other disclosures unless explicitly stated otherwise. Also related to our new strategic plan, during the fourth quarter of 2021, we reorganized our operating groups to improve operating efficiencies and better position the Company for long-term growth. In alphabetical order, our continuing business operating groups are defined as follows:   • California;   • Central (formerly Heavy Civil, Federal and Midwest operating groups), which primarily includes offices in Arizona (formerly in the Northwest operating group), Colorado, Florida, Illinois, Texas and Guam; and   • Mountain (formerly Northwest), which primarily includes offices in Alaska, Nevada, Utah and Washington. In addition, we revised the financial information our chief operating decision maker, or decision-making group (our “CODM”), regularly reviews to allocate resources and assess our performance. This change is consistent with our new strategic plan and better aligns with our continuing civil construction and materials business. Our CODM now regularly reviews financial information regarding our two primary product lines, construction and materials as well as our operating groups. We identified our CODM as our Chief Executive Officer and our Chief Operating Officer. As a result of these changes, in accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 280, Segment Reporting , our reportable segments, which are the same as our operating segments, were changed to: Construction and Materials. The Construction segment replaces the previous Transportation, Water and Specialty reportable segments, with the composition of our Materials segment for our continuing operations remaining unchanged. These changes have been applied retrospectively for all periods presented. See Note 21 for more information about our reportable segments. Principles of Consolidation : The consolidated financial statements include the accounts of Granite Construction Incorporated and its wholly-owned and consolidated subsidiaries. All material inter-company transactions and accounts have been eliminated. Additionally, we participate in various construction joint ventures of which we are a limited member (“joint ventures”). Generally, each construction joint venture is formed to accomplish a specific project and is jointly controlled by the joint venture partners. The joint venture agreements typically provide that our interests in any profits and assets and our respective share in any losses and liabilities that may result from the performance of the contracts are limited to our stated percentage interest in the project. Under our joint venture contractual arrangements, we provide capital to these joint ventures in return for an ownership interest. In addition, partners dedicate resources to the joint ventures necessary to complete the contracts and are reimbursed for their cost. The operational risks of each construction joint venture are passed along to the joint venture members. As we absorb our share of these risks, our investment in each venture is exposed to potential gains and losses. We consolidate joint ventures if we determine that through our participation we have a variable interest and are the primary beneficiary as defined by FASB ASC Topic 810, Consolidation , and related standards. The factors we use to determine the primary beneficiary of a variable interest entity (“VIE”) may include the decision authority of each partner, which partner manages the day-to-day operations of the project and the amount of our equity investment in relation to that of our partners. Although not applicable for any of the years presented, if we determine that the power to direct the significant activities is shared equally by two or more joint venture parties, then there is no primary beneficiary and no party consolidates the VIE. If we have determined we are not the primary beneficiary of a joint venture but do exercise significant influence, we account for our share of the operations of unconsolidated construction joint ventures on a pro rata basis in revenue and cost of revenue in the consolidated statements of operations. We record the corresponding investment balance in equity in construction joint ventures in the consolidated balance sheets except when a project is in a loss position, the investment balance is recorded as a deficit in unconsolidated construction joint ventures and is included in accrued expenses and other current liabilities in the consolidated balance sheets. Our investment in unconsolidated construction joint ventures could extend beyond one year and is within the normal operating cycle of the associated construction projects. We account for non-construction unconsolidated joint ventures under the equity method of accounting in accordance with ASC Topic 323, Investments - Equity Method and Joint Ventures, and include our share of the operations in equity in income of affiliates in the consolidated statements of operations and in investment in affiliates in the consolidated balance sheets. We also participate in “line item” joint venture agreements under which each partner is responsible for performing certain discrete items of the total scope of contracted work. The revenue for each line item joint venture partners’ discrete items of work is defined in the contract with the project owner and each joint venture partner bears the profitability risk associated only with its own work. There is not a single set of books and records for a line item joint venture. Each partner accounts for its items of work individually as it would for any self-performed contract. We account for our portion of these contracts as revenue and cost of revenue in the consolidated statements of operations and in relevant balances in the consolidated balance sheets. Use of Estimates in the Preparation of Financial Statements : The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these financial statements requires management to make estimates that affect the reported amounts of assets and liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Our estimates and related judgments and assumptions are continually evaluated based on available information and experiences; however, actual amounts could differ from those estimates.  Revenue Recognition: Our revenue is primarily derived from construction contracts that can span several quarters or years in our Construction segment and from sales of construction related materials in our Materials segment. We recognize revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers,  and subsequently issued additional related Accounting Standards Updates (“ASU”s) (“Topic 606” ). Topic 606 provides for a five -step model for recognizing revenue from contracts with customers as follows:   1. Identify the contract   2. Identify performance obligations   3. Determine the transaction price   4. Allocate the transaction price   5. Recognize revenue   F- 8 Table of Contents   GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Generally, our contracts contain one performance obligation. Contracts with customers in our Materials segment are typically defined by our customary business practices and are valued at the contractual selling price per unit. Our customary business practices are for the delivery of a separately identifiable good at a point in time which is typically when delivery to the customer occurs. Contracts in our Construction segment  may contain multiple distinct promises or multiple contracts within a master agreement (e.g., contracts that cross multiple locations/geographies and task orders), which we review at contract inception to determine if they represent multiple performance obligations or multiple separate contracts. This review consists of determining if promises or groups of promises are distinct within the context of the contract, including whether contracts are physically contiguous, contain task orders, purchase or sales orders, termination clauses and/or elements not related to design and/or build. The transaction price is the amount of consideration to which we expect to be entitled in exchange for transferring goods and services to the customer. The contractual consideration from customers of our Construction segment  may include both fixed amounts and variable amounts (e.g., bonuses/incentives or penalties/liquidated damages) to the extent that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved (i.e., probable and estimable). When a contract has a single performance obligation, the entire transaction price is attributed to that performance obligation. When a contract has more than one performance obligation, the transaction price is allocated to each performance obligation based on estimated relative standalone selling prices of the goods or services at the inception of the contract, which typically is determined using cost plus an appropriate margin. Subsequent to the inception of a contract in our Construction segment, the transaction price could change for various reasons, including executed or unapproved change orders, and unresolved contract modifications and/or affirmative claims. Changes that are accounted for as an adjustment to existing performance obligations are allocated on the same basis at contract inception. Otherwise, changes are accounted for as separate performance obligation(s) and the separate transaction price is allocated as discussed above. Changes are made to the transaction price from unapproved change orders to the extent the amount can be reasonably estimated and recovery is probable. On certain projects we have submitted and have pending unresolved contract modifications and/or affirmative claims (“affirmative claims”) to recover additional costs and the associated profit, if applicable, to which the Company believes it is entitled under the terms of contracts with customers, subcontractors, vendors or others. The owners or their authorized representatives and/or other third parties may be in partial or full agreement with the modifications or affirmative claims, or may have rejected or disagree entirely or partially as to such entitlement. Changes are made to the transaction price from affirmative claims with customers to the extent that additional revenue on a claim settlement with a customer is probable and estimable. A reduction to costs related to affirmative claims with non-customers with whom we have a contractual arrangement (“back charges”) is recognized when the estimated recovery is probable and estimable. Recognizing affirmative claims and back charge recoveries requires significant judgments of certain factors including, but not limited to, dispute resolution developments and outcomes, anticipated negotiation results, and the cost of resolving such matters. Generally, performance obligations related to contracts in our Construction segment are satisfied over time because our performance typically creates or enhances an asset that the customer controls as the asset is created or enhanced. We recognize revenue as performance obligations are satisfied and control of the promised good and/or service is transferred to the customer. Revenue in our Construction segment is ordinarily recognized over time as control is transferred to the customers by measuring the progress toward complete satisfaction of the performance obligation(s) using an input (i.e., “cost to cost”) method. Under the cost to cost method, costs incurred to-date are generally the best depiction of transfer of control. All contract costs, including those associated with affirmative claims, change orders and back charges, are recorded as incurred and revisions to estimated total costs are reflected as soon as the obligation to perform is determined. Contract costs consist of direct costs on contracts, including labor and materials, amounts payable to subcontractors, direct overhead costs and equipment expense (primarily depreciation, fuel, maintenance and repairs). F- 9 Table of Contents   GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED The accuracy of our revenue and profit recognition in a given period depends on the accuracy of our estimates of the forecasted revenue and cost to complete each project. Cost estimates for all of our significant projects use a detailed “bottom up” approach. There are a number of factors that can contribute to revisions in estimates of contract cost and profitability. The most significant of these include:   • changes in costs of labor and/or materials;   • subcontractor costs, availability and/or performance issues;   • extended overhead and other costs due to owner, weather and other delays;   • changes in productivity expectations;   • changes from original design on design-build projects;   • our ability to fully and promptly recover on affirmative claims and back charges for additional contract costs;   • a change in the availability and proximity of equipment and materials;   • complexity in original design;   • length of time to complete the project;   • the availability and skill level of workers in the geographic location of the project;   • site conditions that differ from those assumed in the original bid;   • costs associated with scope changes; and   • the customer’s ability to properly administer the contract. The foregoing factors, as well as the stage of completion of contracts in process and the mix of contracts at different margins may cause fluctuations in gross profit and gross profit margin from period to period. Significant changes in revenue and cost estimates, particularly in our larger, more complex, multi-year projects have had, and can in future periods have, a significant effect on our profitability. All state and federal government contracts and many of our other contracts provide for termination of the contract at the convenience of the party contracting with us, with provisions to pay us for work performed through the date of termination including demobilization cost. Costs to obtain our contracts (“pre-bid costs”) that are not expected to be recovered from the customer are expensed as incurred and included in selling, general and administrative expenses on our consolidated statements of operations. Although unusual, pre-bid costs that are explicitly chargeable to the customer even if the contract is not obtained are included in accounts receivable on our consolidated balance sheets when we are notified that we are not the low bidder with a corresponding reduction to selling, general and administrative expenses on our consolidated statements of operations. Unearned Revenue: Unearned revenue represents the aggregate amount of the transaction price allocated to unsatisfied or partially unsatisfied performance obligations at the end of a reporting period. We generally include a project in our unearned revenue at the time a contract is awarded, the contract has been executed and to the extent we believe funding is probable. Certain contracts contain contract options that are exercisable at the option of our customers without requiring us to go through an additional competitive bidding process or contain task orders related to master contracts under which we perform work only when the customer awards specific task orders to us. Contract options and task orders are included in unearned revenue when exercised or issued, respectively. As of December 31,   2021 and 2020 , unearned revenue from continuing operations was $ 2.6 billion and $ 2.8 billion, respectively. Approximately $ 2.0  billion of the December  31, 2021  unearned revenue from continuing operations is expected to be recognized within the next twelve months and the remaining amount will be recognized thereafter. Substantially all of the contracts in our unearned revenue may be canceled or modified at the election of the customer; however, we have not been materially adversely affected by contract cancellations or modifications in the past. Many projects are added to unearned revenue and completed within the same fiscal quarter or year and, therefore, may not be reflected in our beginning or ending unearned revenue. Balance Sheet Classifications: Prepaid expenses and amounts receivable and payable under construction contracts (principally retentions) that may exist over the duration of the contract and could extend beyond one year are included in current assets and liabilities. A one -year time period is used as the basis for classifying all other current assets and liabilities. Included in other current assets on the consolidated balance sheets as of December 31, 2021 is the $ 129.0 million deposit for legal settlement discussed in Note 20. Cash and Cash Equivalents : Cash equivalents are securities having maturities of three months or less from the date of purchase. Our access to joint venture cash may be limited by the provisions of the joint venture agreements. Contract Assets: Our contract assets include costs and estimated earnings in excess of billings as well as amounts due under contractual retention provisions. Costs and estimated earnings in excess of billings represent amounts earned and reimbursable under contracts, including customer affirmative claim recovery estimates, and have a conditional right for billing and payment such as achievement of milestones or completion of the project. Generally, with the exception of customer affirmative claims, such unbilled amounts will become billable according to the contract terms and generally will be billed and collected over the next twelve months. Settlement with the customer of outstanding affirmative claims is dependent on the claims resolution process and could extend beyond one year. Based on our historical experience, we generally consider the collection risk related to billable amounts to be low. However, when events or conditions indicate that it is probable that the amounts become unbillable, the transaction price and associated contract asset is reduced. Certain contracts in our Construction segment include retention provisions to provide assurance to our customers that we will perform in accordance with the contract terms and are not considered a financing benefit under ASC Topic 606. The balances billed but not paid by customers pursuant to these provisions generally become due upon completion and acceptance of the project work or products by the customer. Marketable Securities : We determine the classification of our marketable securities at the time of purchase and re-evaluate these determinations at each balance sheet date. Our marketable securities are fixed income marketable securities and are classified as held-to-maturity as we have the positive intent and ability to hold the securities to maturity. Held-to-maturity investments are stated at amortized cost and are periodically assessed for other-than-temporary impairment. Amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity and is included in interest income. The cost of securities redeemed or called is based on the specific identification method. Derivative Instruments: We recognize derivative instruments as either assets or liabilities in the consolidated balance sheets at fair value using Level 2 inputs. To receive hedge accounting treatment, derivative instruments that are designated as cash flow hedges must be highly effective in offsetting changes to expected future cash flows on hedged transactions. We formally document our hedge relationships at inception, including identification of the hedging instruments and the hedged items, our risk management objectives and strategies for undertaking the hedge transaction, and the initial quantitative assessment of the hedging instrument’s effectiveness in offsetting changes in the fair value of the hedged items. The effective portion of the gain or loss on cash flow hedges is reported as a component of accumulated other comprehensive income (loss) and subsequently reclassified to the consolidated statements of operations when the periodic hedged cash flows are settled. Adjustments to fair value on derivative instruments that are  not  part of a designated hedging relationship are reported through the consolidated statements of operations. We do  not  enter into derivative instruments for speculative or trading purposes. The derivative transactions related to the 2.75 % Convertible Notes (as defined in Note 14 ) were recorded to equity on our consolidated balance sheets based on the cash proceeds and will not be remeasured as long as they continue to meet the conditions for equity classification.  F- 10 Table of Contents   GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Fair Value of Financial Assets and Liabilities:  We measure and disclose certain financial assets and liabilities at fair value. ASC Topic 820,   Fair Value Measurements and Disclosures,  defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC Topic 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC Topic 820  describes three levels of inputs that may be used to measure fair value: Level 1 - Quoted prices in active markets for identical assets or liabilities. Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. We utilize the active market approach to measure fair value for our financial assets and liabilities. We report separately each class of assets and liabilities measured at fair value on a recurring basis and include assets and liabilities that are disclosed but not recorded at fair value in the fair value hierarchy. Allowance for   Credit Losses:  Financial assets, which potentially subject us to credit losses, consist primarily of short and long-term marketable securities, receivables, contract assets and long-term notes receivables included in other noncurrent assets in our consolidated balance sheets. We measure expected credit losses of financial assets based on historical loss and other information available to management using a loss rate method applied to asset groups with categorically similar risk characteristics. These expected credit losses are recorded to an allowance for credit losses valuation account that is deducted from receivables and contract assets to present the net amount expected to be collected on the financial asset on the consolidated balance sheets. Concentrations of Credit Risk: Financial instruments, which potentially subject us to concentrations of credit risk, consist primarily of cash and cash equivalents, marketable securities, accounts receivable and contract assets. We maintain our cash and cash equivalents and our marketable securities with several financial institutions. We invest with high credit quality financial institutions and, by policy, limit the amount of credit exposure to any one financial institution. During the years ended December 31, 2021, 2020 and 2019,  our largest volume customer, including both prime and subcontractor arrangements, was the California Department of Transportation (“Caltrans”). Revenue recognized from contracts with Caltrans during the years ended December 31, 2021, 2020 and 2019 represented $ 337.1  million ( 11.2 % of total revenue from continuing operations), $ 316.9  million ( 10.1 % of total revenue from continuing operations) and $ 226.2  million ( 7.8 % of total revenue from continuing operations), respectively, which was primarily in the Construction segment. Other than Caltrans, none of our customers, including both prime and subcontractor arrangements, had revenue that individually exceeded 10% of total revenue during the years ended  December 31, 2021 and  2020 and none of our customers had revenue that individually exceeded 10% of total revenue during the year ended  December 31,   2019 . The majority of our receivables are from customers concentrated in the United States. None of our customers had a receivable balance in excess of 10% of our total net receivables as of  December 31,   2021  and  2020 . Certain construction contracts include retention provisions that were included in contract assets as of December 31,   2021  and  2020  in our consolidated balance sheets. The balances billed but not paid by customers pursuant to these provisions generally become due upon completion and acceptance of the project work or products by the owners. As of December 31,   2021  and  2020 , contract retention receivable from Virgin Trains USA Florida LLC represented 17.2 % and 13.2 %, respectively, of total contract assets. No other contract retention receivable individually exceeded 10% at any of the presented dates. The majority of the December 31, 2021 contract retention balance disclosed in Note 6 is expected to be collected within one year. We perform ongoing credit evaluations of our customers and generally do not require collateral, although the law provides us the ability to file mechanics’ liens on real property improved for private customers in the event of non-payment by such customers. Inventories:  Inventories relating to our continuing operations consist primarily of quarry products that are valued at the lower of average cost or net realizable value . We reserve quarry products based on estimated quantities of materials on hand in excess of approximately one year of demand. Investments in Affiliates : Each investment accounted for under the equity method of accounting is reviewed for impairment in accordance with ASC Topic 323, Investments - Equity Method and Joint Ventures.  We account for our share of the operating results of the equity method investments in equity in income from affiliates, net in the consolidated statements of operations and as a single line item in the consolidated balance sheets as investments in affiliates. Our investments in affiliates include real estate entities and an asphalt terminal entity. These investments are evaluated for impairment using the other-than-temporary impairment model, which requires an impairment charge to be recognized if our investment’s carrying amount exceeds its fair value, and the decline in fair value is deemed to be other than temporary. Recoverability is measured by comparison of carrying amounts to future undiscounted cash flows the investments are expected to generate. Events or changes in circumstances, which would cause us to review undiscounted future cash flows include, but are not limited to:   • significant adverse changes in legal factors or the business climate and   • current period cash flow or operating losses combined with a history of losses, or a forecast of continuing losses associated with the use of the asset. In addition, events or changes in circumstances specifically related to our real estate entities, include:   • significant decreases in the market price of the asset;   • accumulation of costs significantly in excess of the amount originally expected for the acquisition, development or construction of the asset; and   • significant changes to the development or business plans of a project. Future undiscounted cash flows and fair value assessments for the asphalt terminal entity are estimated based on market conditions and the political climate. Future undiscounted cash flows and fair value assessments for our real estate entities are estimated based on entitlement status, market conditions, cost of construction, debt load, development schedules, status of joint venture partners and other factors applicable to the specific project. Fair value is estimated based on the expected future cash flows attributable to the asset or group of assets and on other assumptions that market participants would use in determining fair value, such as market discount rates, transaction prices for other comparable assets, and other market data. Our estimates of cash flows may differ from actual cash flows due to, among other things, fluctuations in interest rates, decisions made by jurisdictional agencies, economic conditions, or changes to our business operations.  Property and Equipment : Property and equipment are stated at cost. Depreciation for construction and other equipment is primarily provided using accelerated methods over lives ranging from three to ten years, and the straight-line method over lives from two  to twenty years for the remaining depreciable assets. We believe that accelerated methods best approximate the service provided by the construction and other equipment. Depletion of quarry property is based on the usage of depletable reserves. We frequently sell property and equipment that has reached the end of its useful life or no longer meets our needs, including depleted quarry property. At the time that an asset or an asset group meets the held-for-sale criteria as defined by ASC Topic 360, Property, Plant, and Equipment,  depreciation is discontinued and we write it down to fair value less cost to sell, if the fair value is below the carrying value. Fair value is estimated by a variety of factors including, but not limited to, market comparative data, historical sales prices, broker quotes and third -party valuations. If material, such property is separately disclosed in the consolidated balance sheets, otherwise it is held in property and equipment until sold. The cost and accumulated depreciation or depletion of property sold or retired is removed from the consolidated balance sheets and the resulting gains or losses, if any, are reflected in operating income on the consolidated statements of operations for the period. In the case that we abandon an asset, an amount equal to the carrying amount of the asset, less salvage value, if any, will be recognized as expense in the period that the asset was abandoned. Repairs and maintenance are expensed as incurred. Costs related to the development of internal-use software during the preliminary project and post-implementation stages are expensed as incurred. Costs incurred during the application development stage are capitalized. These costs consist primarily of software, hardware and consulting fees, as well as salaries and related costs. Amounts capitalized are reported as a component of office furniture and equipment within property and equipment in the consolidated balance sheets. Capitalized software costs are depreciated using the straight-line method over the estimated useful life of the related software, which ranges from three to seven years. During the years ended December 31,   2021 ,  2020  and  2019 , we capitalized $ 12.0  million, $ 7.4  million and $ 1.2  million, respectively, of internal-use software development and related hardware costs. Long-lived Assets: We review property and equipment and amortizable intangible assets for impairment at an asset group level whenever events or changes in circumstances indicate the carrying amount of an asset group may not be recoverable. Recoverability of these asset groups is measured by comparison of their carrying amounts to the future undiscounted cash flows the asset groups are expected to generate. If the asset groups are considered to be impaired, an impairment charge will be recognized equal to the amount by which the carrying amount of the asset group exceeds fair value. We group construction and plant equipment assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets. When an individual asset or group of assets is determined to no longer contribute to its vertically integrated construction and plant equipment asset group, it is assessed for impairment independently. F- 11 Table of Contents   GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Goodwill:  As a result of the changes in our reportable segments and operating groups, we reassessed our reporting units and have determined our continuing operations have  five reporting units in which goodwill was recorded as follows:   • Central Group Construction   • Central Group Materials   • Mountain Group Construction   • Mountain Group Materials   • California Group Construction We determined our discontinued operations have  two reporting units in which goodwill was recorded as follows:   • WMS Construction   • WMS Materials We perform our goodwill impairment tests annually as of November 1 and more frequently when events and circumstances occur that indicate a possible impairment of goodwill. Examples of such events or circumstances include, but are not limited to, the following:    • a significant adverse change in the business climate;   • a significant adverse change in legal factors or an adverse action or assessment by a regulator;   • a more likely than not expectation that a segment or a significant portion thereof will be sold; or   • the testing for recoverability of a significant asset group within the segment. In accordance with U.S. GAAP, we can elect to perform a qualitative assessment to test a reporting unit’s goodwill for impairment or perform a quantitative impairment test. Based on a qualitative assessment, if we determine that the fair value of a reporting unit is more likely than not to be less than its carrying amount, the quantitative impairment test will be performed. In performing the quantitative goodwill impairment tests, we calculate the estimated fair value of the reporting unit in which the goodwill is recorded using the discounted cash flows and market multiple methods. The estimated fair value is compared to the carrying amount of the reporting unit, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the fair value of the reporting unit is less than its carrying amount, goodwill is impaired and the excess of the reporting unit’s carrying amount over the fair value is recognized as a non-cash impairment charge. Judgments inherent in these methods include the determination of appropriate discount rates, the amount and timing of expected future cash flows, revenue and margin growth rates, and appropriate benchmark companies. The cash flows used in our  2021  discounted cash flow model were based on five -year financial forecasts developed internally by management adjusted for market participant-based assumptions. Our discount rate assumptions are based on an assessment of the equity cost of capital and appropriate capital structure for our reporting units. To assess for reasonableness, we compare the estimated fair values of the reporting units to our current market capitalization. For our 2021 annual goodwill impairment test, we conducted quantitative impairment tests based on the operating structure in place at November 1. Impairment tests were conducted for the Midwest Group Specialty and WMS Water, Specialty and Materials reporting units and concluded that goodwill was not impaired since the estimated fair value for each of those reporting units exceeded their respective carrying amounts. The assessment for the Midwest Group Specialty as well as WMS Water and Specialty reporting units indicated that their estimated fair values exceeded their carrying amounts (i.e., headroom) by over 30%. The assessment for the WMS Materials reporting unit indicated that its estimated fair value exceeded its carrying amount by 10% and the recent purchase and sale agreement for Inliner (see Note 2 ), which includes 100% of the WMS Materials reporting unit, supports its carrying value. We elected to perform a qualitative assessment of the Midwest Group Transportation, Northwest Group Transportation, Northwest Group Materials and California Group Transportation reporting units and we determined that it was more likely than not that the fair values were greater than the carrying amounts; therefore, no quantitative goodwill impairment test was performed for these reporting units. Factors we considered in our qualitative assessment were macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, changes in management or key personnel, changes in strategy, changes in customers and changes in the composition or carrying amount of the reporting unit’s net assets. Due to the changes in our reporting structure and the resulting changes to reporting units, we conducted impairment tests immediately before and after the reorganization, which was effective December 1. Since there were no significant changes to the reporting units from the time of the annual impairment test, we conducted qualitative assessments before the changes on the Midwest Group Specialty and the WMS Water, Specialty and Materials reporting units. We determined that it was more likely than not that the fair values were greater than the carrying amounts; therefore, no quantitative goodwill impairment test was performed for these reporting units. The changes in our reporting structure had no impact on the Central Group Materials, Mountain Group Materials, California Group Construction or the WMS Materials reporting units and there were no significant changes to these reporting units from the time of the annual impairment test; therefore, no further goodwill impairment assessment was performed on these reporting units after the changes. We performed quantitative impairment tests after the changes on the reporting units that were affected by the changes in our reporting structure, which were the Central Group Construction, Mountain Group Construction and WMS Construction reporting units. We calculated the estimated fair value of these reporting units consistent with the annual impairment assessment using the discounted cash flows and market multiple methods as well as the consideration to be paid for Inliner under the purchase and sale agreement, which includes a substantial portion of the WMS Construction reporting unit. These tests indicated that the estimated fair values of the reporting units exceeded their carrying amounts with headroom in excess of 30%.   F- 12 Table of Contents   GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Right of use Assets ( “ ROU ” )   and Lease Liabilities: A lease contract conveys the right to use an underlying asset for a period of time in exchange for consideration. At inception, we determine whether a contract contains a lease by determining if there is an identified asset and if the contract conveys the right to control the use of the identified asset in exchange for consideration over a period of time. We recognize leases in accordance with ASC Topic 842,   Leases , and subsequently issued additional related ASUs (“Topic 842” ), which we adopted during our quarter ended  March 31, 2019 using a modified retrospective transition approach. At lease commencement, we measure and record a lease liability equal to the present value of the remaining lease payments, generally discounted using the borrowing rate on our secured debt as the implicit rate is not readily determinable on many of our leases. We use a quarterly maturity discount rate if it is not materially different than the discount rates applied to each of the leases in the portfolio. On the lease commencement date, the amount of the ROU assets consists of the following:   • the amount of the initial measurement of the lease liability;   • any lease payments made at or before the commencement date, minus any lease incentives received; and   • any initial direct costs incurred. On a quarterly basis, we determine if subcontractor, vendor or service provider agreements contain embedded leases by assessing if an asset is explicitly or implicitly specified in the agreement and the counterparty has the right to substitute the asset. Most of our lease contracts do not have the option to extend or renew. We assess the option for individual leases, and we generally consider the base term to be the term of lease contracts. Lease contracts may contain nonlease components for which we elected to include both the lease and nonlease components as a single component and account for it as a lease. Contract Liabilities: Our contract liabilities consist of billings in excess of costs and estimated earnings, net of the related contract retention and provisions for losses. Billings in excess of costs and estimated earnings are billings to customers on contracts in advance of work performed, including advance payments negotiated as a contract condition. Generally, unearned project-related costs will be earned over the next twelve months. Provisions for losses are recognized in the consolidated statements of operations at the uncompleted performance obligation level for the amount of total estimated losses in the period that evidence indicates that the estimated total cost of a performance obligation exceeds its estimated total revenue. Asset Retirement Obligations: We account for the costs related to legal obligations to reclaim aggregate mining sites and other facilities by recording our estimated asset retirement obligation at fair value using Level 3 inputs, capitalizing the estimated liability as part of the related asset’s carrying amount and allocating it to expense over the asset’s useful life. Warranties: Many of our construction contracts contain warranty provisions covering defects in equipment, materials, design or workmanship that generally run from six months to one year after our customer accepts the contract. Because of the nature of our projects, including contract owner inspections of the work both during construction and prior to acceptance, we have not experienced material warranty costs for these short-term warranties and, therefore, do not believe an accrual for these costs is necessary. Certain construction contracts carry longer warranty periods, ranging from two to ten years, for which we have accrued an estimate of warranty cost. The warranty liability is estimated based on our experience with the type of work and any known risks relative to the project and was not material as of December 31,   2021 and 2020 .  Accrued Insurance Costs: We carry insurance policies to cover various risks, including general liability, automobile liability, workers compensation and employee medical expenses under which we are liable to reimburse the insurance company for certain losses.  The amounts for which we are liable range from the first $ 0.5 million to $ 1.5 million per occurrence. We accrue for probable losses, both reported and unreported, that are reasonably estimable using actuarial methods based on historic trends, modified, if necessary, by recent events. The establishment of accruals for estimated losses associated with our insurance policies are based on actuarial studies that include known facts and interpretations of circumstances, including our experience with similar cases and historical trends involving claim payment patterns, pending levels of unpaid claims, claim severity, frequency patterns and changing regulatory and legal environments. Changes in our loss assumptions caused by changes in actual experience would affect our assessment of the ultimate liability and could have an effect on our operating results and financial position. Surety Bonds : We generally are required to provide various types of surety bonds that provide an additional measure of security for our performance under certain public and private sector contracts. At December 31,   2021 , approximately $ 2.3  billion of our $ 4.0 billion Committed and Awarded Projects were bonded. Performance bonds do not have stated expiration dates; rather, we are generally released from the bonds after the owner accepts the work performed under contract. The ability to maintain bonding capacity to support our current and future level of contracting requires that we maintain cash and working capital balances satisfactory to our sureties. Performance Guarantees:  The agreements with our joint venture partners (“partner(s)”) for both construction joint ventures and line item joint ventures define each partner’s management role and financial responsibility in the project. The amount of operational exposure is generally limited to our stated ownership interest. However, due to the joint and several nature of the performance obligations under the related owner contracts, if any of the partners fail to perform, we and the remaining partners, if any, would be responsible for performance of the outstanding work (i.e., we provide a performance guarantee). We estimate our liability for performance guarantees for our unconsolidated and line item joint ventures using estimated partner bond rates, which are Level 2 inputs, and include them in accrued expenses and other current liabilities with a corresponding increase in equity in construction joint ventures in the consolidated balance sheets. We reassess our liability when and if changes in circumstances occur. The liability and corresponding asset are removed from the consolidated balance sheets upon completion and customer acceptance of the project. Circumstances that could lead to a loss under these agreements beyond our stated ownership interest include the failure of a partner to contribute additional funds to the venture in the event the project incurs a loss or additional costs that we could incur should a partner fail to provide the services and resources that it had committed to provide in the agreement. We are not able to estimate amounts that may be required beyond the remaining cost of the work to be performed. These costs could be offset by billings to the customer or by proceeds from our partners’ corporate and/or other guarantees. Contingencies: We are currently involved in various claims and legal proceedings. Loss contingency provisions are recorded if the potential loss from any asserted or un-asserted claim or legal proceeding is considered probable and the amount can be reasonably estimated. If a potential loss is considered probable but only a range of loss can be determined, the low-end of the range is recorded. These accruals represent management’s best estimate of probable loss. Disclosure is also provided when it is reasonably possible and estimable that a loss will be incurred or when it is reasonably possible that the amount of a loss will exceed the amount recorded. Significant judgment is required in both the determination of probability of loss and the determination as to whether an exposure is reasonably estimable. Because of uncertainties related to these matters, accruals are based only on the best information available at the time. As additional information becomes available, we reassess the potential liability related to claims and litigation and may revise our estimates. We expense associated legal costs as they are incurred. See Note 20 for additional information. Stock-Based Compensation: We measure and recognize compensation expense, net of forfeitures, over the requisite vesting periods for all stock-based payment awards made and we recognize forfeitures as they occur. Stock-based compensation is included in selling, general and administrative expenses and cost of revenue on our consolidated statements of operations. F- 13 Table of Contents   GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Other Costs:  Other costs included on the consolidated statements of operations primarily consisted of $ 66  million in net settlement charges incurred during 2021  as further described in Note 20 .  Other costs also included $ 21.6  million and $ 35.6  million for the years ended  December 31, 2021 and 2020, respectively, of non-recurring legal and accounting fees. The majority of these non-recurring fees related to the lawsuits discussed in Note 20 and to the Audit Committee’s independent investigation of prior-period reporting for the former Heavy Civil operating group, which was completed in early 2021.  The remaining other costs includes personnel costs incurred in connection with our operating group reorganization during 2021 and integration expenses incurred in 2020 and 2019  related to the Layne Christensen Company (“Layne”) acquisition that occurred in 2018. Income Taxes : Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities in the consolidated financial statements and their respective tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Disproportionate income tax effects which are stranded in accumulated other comprehensive income will be released using the item-by-item approach. We report a liability in accrued expenses and other current liabilities and in other long-term liabilities in the consolidated balance sheets for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. We recognize interest and penalties, if any, related to unrecognized tax benefits in interest expense and other income, net in the consolidated statements of operations. Computation of Earnings per Share : Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed using the weighted-average number of common shares and dilutive potential common shares outstanding during the period. Dilutive potential common shares include common share equivalents under the 2012 and 2021  Equity Incentive Plans using the if-converted method. Dilutive potential common shares also include common share equivalents related to our 2.75% Convertible Notes assuming the share price of our common stock was in excess of $ 31.47 per share and common share equivalents relating to our warrants assuming the share price of our common stock was in excess of $ 53.44 , the exercise price of warrants. See Note 14  for further discussion related to the 2.75% Convertible Notes and warrants. Convertible Notes : U.S. GAAP requires certain convertible debt instruments that may be settled in cash on conversion to be separately accounted for into liability and equity components in a manner that reflects the issuer’s non-convertible debt borrowing rate. Third party offering costs are allocated to the liability and equity components based on allocation of proceeds to those components, and are recorded net of the associated balances on the consolidated balance sheets and are generally amortized to interest expense through the maturity date of the debt. Therefore, cash received from the issuance of the 2.75% Convertible Notes (as defined in Note 14 ) was separated into liability and equity components on the consolidated balance sheets at the time of issuance based on the fair value of a similar liability that does not have an associated convertible feature. The difference between the principal amount and the liability component on the issuance date has been recorded to interest expense using an effective interest rate of 6.62 % over the expected life of the 2.75% Convertible Notes. Debt discounts are recorded to the liability component through the maturity date of the debt. Recently Issued Accounting Pronouncements: In October 2021, the FASB issued ASU 2021 - 08, Business Combinations (Topic 805 ) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , which amended the current business combination accounting guidance in ASC 805 to require entities to apply Topic 606 in recognizing and measuring contract assets and contract liabilities acquired in a business combination. The ASU is effective commencing with our quarter ending March 31, 2022 with early adoption permitted. We early adopted this guidance in 2021; however, this ASU did not impact the periods included in these consolidated financial statements and would be applicable only if we had a business combination and if the acquired entity had contract assets or liabilities. In  August 2020,  the FASB issued ASU  2020 - 06 ,   Debt -   Debt with Conversion and Other Options (Subtopic   470 - 20 ) and Derivatives and Hedging -   Contracts in Entity ’ s Own Equity (Subtopic   815 - 40 ): Accounting for Convertible Instruments and Contracts in an Entity ’ s Own Equity  (“ASU  2020 - 06” ) ,  which simplifies the accounting for convertible instruments resulting in accounting for convertible debt instruments as a single liability measured at its amortized cost. This change will also reduce reported interest expense and increase reported net income as we issued a convertible instrument that was bifurcated according to previously existing rules. In addition, the ASU requires the application of the if-converted method for calculating diluted earnings per share and eliminates the treasury stock method for convertible debt. The ASU is effective commencing with our quarter ending  March 31, 2022.  We currently anticipate adopting this ASU using the modified retrospective transition approach. Upon issuance of the  2.75% convertible senior notes due  2024  ( “2.75%  Convertible Notes”), cash received was separated into a $ 192.6  million debt component and a $ 37.4  million (less $ 9.5  million of taxes) equity component. We have been increasing the debt component for the difference between the principal amount of $ 230.0 million and the $ 192.6  million (“debt discount”) with an offset to interest expense over the life of the loan using an effective interest rate. Upon adoption of ASU  2020 - 06 ,  the previously recorded equity component of the convertible instrument outstanding and debt issuance costs will be reclassified from equity to debt, net of tax, and the interest expense previously recorded from the amortization of the debt discount and debt issuance costs will be reversed through retained earnings with an offset to debt. We expect the primary impact of this new standard will be to increase the carrying value of convertible debt by approximately $ 22 million, with an offsetting reduction in shareholders’ equity, and reduce reported interest expense in future periods. In addition, using the if-converted method as compared to the treasury stock method may have a material impact to diluted earnings per share. In  March 2020,  the FASB issued ASU  2020 - 04 ,   Reference Rate Reform   (Topic   848 ): Facilitation of the Effects of Reference Rate Reform on Financial Reporting , which provides optional guidance to ease the potential burden in accounting for the effects of the transition away from LIBOR and other reference rates. Also, in  January 2021,  the FASB issued ASU  2021 - 01 ,   Reference Rate Reform (Topic   848 ): Scope , which provided clarification guidance to ASU  2020 - 04 .  These ASUs are effective at our option beginning with our quarter ended  March 31, 2020  through  December 31, 2022,  and we expect to adopt in the  second  quarter of  2022.  As our Third Amended and Restated Credit Agreement dated  May 18, 2021,  as subsequently amended (the “Credit Agreement”) currently incorporates the use of the secured overnight financing rate as an alternative to LIBOR, we do  not  expect the adoption of these ASUs to have a material impact on our consolidated financial statements.   F- 14 Table of Contents   GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED   2. Discontinued Operations and Held-for-Sale As discussed in Note 1, during the fourth quarter of 2021, management determined that WMS no longer aligned with our new strategic plan, and our Board of Directors approved a plan to sell the associated businesses within the next twelve months. This includes: Inliner; our water supply, treatment, delivery and maintenance business (“Water Resources”); and our mineral exploration drilling business (“Mineral Services”). This approval, in combination with previously existing facts and circumstances, resulted in the Company concluding that the assets and liabilities of WMS met the criteria for classification as held-for-sale. The Company concluded the planned disposal activities represented a strategic shift that will have a major effect on the Company’s operations and financial results and qualified for presentation as discontinued operations in accordance with ASC Topic 205 - 20, Presentation of financial statements - Discontinued operations . Additionally, beginning December 31, 2021, in accordance with ASC 360, Property, Plant, and Equipment , we ceased recording depreciation and amortization for WMS property, plant and equipment, finite-lived intangible assets and right of use lease assets. On February 2, 2022, we entered into a purchase agreement with Inland Pipe Rehabilitation LLC (“IPR”) and 1000097155 Ontario Inc. (“Ontario” and together with IPR, the “Purchasers”), investment affiliates of J.F. Lehman & Company. Per the terms of that agreement, the Company agreed to sell Inliner to the Purchasers for a purchase price of $ 159.7  million. The sale has been unanimously approved by the Company’s Board of Directors and is subject to customary covenants and closing conditions. The transaction is expected to close in the first half of 2022. Water Resources and Mineral Services, which represent the remainder of WMS, are expected to be sold within the next twelve months. The following table presents summarized balance sheet information of assets and liabilities held-for-sale (in thousands): December 31,     2021       2020   Cash and cash equivalents   $ 16,496     $ 10,844   Receivables, net     102,208       103,254   Contract assets     41,340       32,842   Inventories     19,625       19,891   Other current assets     1,781       4,432   Property and equipment, net     70,912       105,867   Investments in affiliates     48,675       47,650   Goodwill     63,063       63,062   Right of use assets     12,365       9,269   Other noncurrent assets     16,176       26,256   Total assets classified as held-for-sale   $ 392,641     $ 423,367                     Accounts payable   $ 37,997     $ 37,813   Contract liabilities     7,129       8,396   Other current liabilities     27,764       22,750   Deferred income taxes, net     —       1,133   Long-term lease liabilities     8,352       6,953   Other long-term liabilities     2,166       2,264   Total liabilities classified as held-for-sale   $ 83,408     $ 79,309   The following table represents summarized statements of operations information of discontinued operations (in thousands): Years Ended December 31,   2021     2020     2019   Revenue   $ 491,812     $ 433,580     $ 530,729   Cost of revenue     434,723       393,445       498,836   Selling, general and administrative expenses     59,932       63,405       69,834   Non-cash impairment charges (1)     —       156,690       —   Other costs     6,196       125       8,564   Gain on sales of property and equipment, net (2)     ( 32,658 )     ( 2,005 )     ( 5,330 ) Other (income) expense, net     ( 8,004 )     ( 3,472 )     ( 4,321 ) Provision for (benefit from) income taxes     20,950       ( 10,209 )     ( 8,088 ) Net income (loss) from discontinued operations   $ 10,673     $ ( 164,399 )   $ ( 28,766 ) ( 1 ) During  2020 ,  we performed  two interim goodwill impairment tests. The first was on the WMS Materials and WMS Specialty reporting units due to an adverse change in the business climate for these reporting units, including a modified relationship with a business partner, increased competition and market consolidation ,  exacerbated by economic disruption and market conditions associated with the COVID- 19  pandemic. The goodwill impairment test resulted in a $ 14.8 million impairment charge during the three months ended March 31, 2020 associated with the WMS Materials reporting unit and no impairment charge related to the WMS Specialty reporting unit. The second test was on the WMS Water and WMS Materials reporting units due to the continued impact from an adverse change in the business climate, including reduced market share due to loss of strategic personnel during the  three  months ended  September 30, 2020. The goodwill impairment test resulted in an additional impairment charge of $ 117.9  million and $ 14.4  million associated with our WMS Water and WMS Materials reporting units, respectively, during the three months ended September  30, 2020.  In addition, we recorded an impairment charge of $ 9.6  million during the year ended December 31, 2020 related to entities within investments in foreign affiliates related due to other than temporary adverse changes in the associated business climate. ( 2 ) During 2021,  we completed a sale-leaseback transaction for   two  properties in California. The sale of these properties resulted in a reduction in net property and equipment of $ 11.1  million and a $ 2.4  million addition to both right of use assets and lease liabilities on the held-for-sale balance sheets, as well as a $ 29.7  million gain on sales of property and equipment on the discontinued operations statements of operations. The significant components included in the consolidated statement of cash flows for the discontinued operations are as follows (in thousands): For the Year Ended December 31,   2021     2020     2019   Depreciation, depletion and amortization   $ 39,556     $ 48,010     $ 55,865   Non-cash impairment charges (1)   $ —     $ 156,690     $ —   Purchases of property and equipment   $ ( 11,982 )   $ ( 16,657 )   $ ( 13,451 ) Proceeds from sales of property and equipment   $ 49,266     $ 7,610     $ 11,522   ( 1 ) During  2020 the interim goodwill impairment tests resulted in impairment charges. See further discussion in note ( 1 ) in the statements of operations table within this footnote. F- 15 Table of Contents   GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED     3. Revisions in Estimates Our profit recognition related to construction contracts is based on estimates of transaction price and costs to complete each project. These estimates can vary significantly in the normal course of business as projects progress, circumstances develop and evolve, and uncertainties are resolved. Changes in estimates of transaction price and costs to complete  may result in the reversal of previously recognized revenue if the current estimate adversely differs from the previous estimate. In addition, the estimated or actual recovery related to estimated costs associated with unresolved affirmative claims and back charges  may  be recorded in future periods or  may  be at values below the associated cost, which can cause fluctuations in the gross profit impact from revisions in estimates. When we experience significant revisions in our estimates, we undergo a process that includes reviewing the nature of the changes to ensure that there are no material amounts that should have been recorded in a prior period rather than as revisions in estimates for the current period. For revisions in estimates, generally we use the cumulative catch-up method for changes to the transaction price that are part of a single performance obligation. Under this method, revisions in estimates are accounted for in their entirety in the period of change. There can be no assurance that we will not experience further changes in circumstances or otherwise be required to revise our estimates in the future.  In our review of these changes for the years ended  December 31, 2021 and 2020, we did  not  identify any material amounts that should have been recorded in a prior period. Other than those identified in the  2019  Annual Report on Form  10 -K, we did  not  identify any material amounts that should have been recorded in a prior period for the year ended December 31,  2019.   The net changes in project profitability from revisions in estimates, both increases and decreases, which individually had an impact of $ 5.0 million or more on gross profit were net decreases of $ 70.6  million, $ 143.5  million and $ 199.1  million for the years ended  December  31, 2021,   2020  and  2019, respectively. The projects are summarized as follows (dollars in millions except per share data): Increases Years Ended December 31,   2021     2020     2019   Number of projects with upward estimate changes     2       —       —   Range of increase in gross profit from each project, net   $ 6.2 - 9.2     $ —     $ —   Increase to project profitability   $ 15.4     $ —     $ —   Increase to net income/decrease to net loss attributable to Granite Construction Incorporated from continuing operations   $ 11.4     $ —     $ —   Increase to net income/decrease to net loss per diluted share attributable to common shareholders from continuing operations   $ 0.25     $ —     $ —   The increases during the year ended December 31,   2021  were due to production at a higher rate than anticipated and a decrease in estimated cost from mitigated risks as well as settlement of outstanding customer affirmative claims. There were no amounts attributable to non-controlling interests for any of the periods presented. Decreases Years Ended December 31,   2021     2020     2019   Number of projects with downward estimate changes     6       7       10   Range of reduction in gross profit from each project, net   $ 5.3 - 34.6     $ 6.7 - 49.9     $ 5.5 - 52.6   Decrease to project profitability   $ 86.0     $ 143.4     $ 199.1   Decrease to net income/increase to net loss from continuing operations   $ 69.1     $ 114.7     $ 150.3   Amounts attributable to non-controlling interests   $ 20.5     $ 31.9     $ 9.8   Decrease to net income/increase to net loss attributable to Granite Construction Incorporated from continuing operations   $ 48.6     $ 82.9     $ 140.5   Decrease to net income/increase to net loss per diluted share attributable to common shareholders from continuing operations (1)   $ 1.06     $ 1.79     $ 3.02   ( 1 ) The prior period amounts have been adjusted to correctly present the per share impact attributable to common shareholders. The decreases during the year ended December 31,   2021  were due primarily to additional costs from acceleration of work coupled with lower productivity and higher costs than originally anticipated, unfavorable weather and extended project duration. The decreases during the year ended December 31,   2020  were due to increases in design, production, weather-related and labor contingency costs. The decreases during the year ended December 31, 2019 were due to increased project completion costs, schedule delays, lower productivity than originally anticipated, performance of a significant amount of unresolved disputed work, an unfavorable court ruling on a designer back charge claim and additional weather-related costs partially offset by an increase in estimated recovery from customer affirmative claims. F- 16 Table of Contents   GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED   4. Disaggregation of Revenue We disaggregate our revenue based on our reportable segments and operating groups as it is the format that is regularly reviewed by management. Our reportable segments are: Construction and Materials. In alphabetical order, our operating groups from continuing operations are: California, Central and Mountain. The following tables present our disaggregated revenue (in thousands): 2021   Construction     Materials     Total   California   $ 822,448     $ 242,552     $ 1,065,000   Central     1,058,448       33,270       1,091,718   Mountain     721,410       131,925       853,335   Total   $ 2,602,306     $ 407,747     $ 3,010,053     2020   Construction     Materials     Total   California   $ 928,193     $ 222,021     $ 1,150,214   Central     1,145,725       25,181       1,170,906   Mountain     690,176       117,583       807,759   Total   $ 2,764,094     $ 364,785     $ 3,128,879     2019   Construction     Materials     Total   California   $ 787,259     $ 198,465     $ 985,724   Central     1,056,385       23,830       1,080,215   Mountain     732,147       116,791       848,938   Total   $ 2,575,791     $ 339,086     $ 2,914,877     F- 17 Table of Contents   GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED   5. Unearned Revenue The following table presents our unearned revenue from continuing operations as of the respective periods (in thousands): December 31,   2021     2020   California   $ 771,759     $ 816,082   Central     1,334,901       1,482,158   Mountain     488,425       512,587   Total   $ 2,595,085     $ 2,810,827     6. Contract Assets and Liabilities During the years ended December 31,   2021 ,  2020  and 2019 , we recognized revenue of $ 176.2  million, $ 110.9  million and $ 116.1  million, respectively, that was included in the contract liability balances at  December 31,   2020 ,  2019  and 2018, respectively. As a result of changes in contract transaction price related to performance obligations that were satisfied or partially satisfied prior to the end of the periods we recognized revenue of $ 153.9  million, $ 176.1  million and $ 152.1  million during the years ended December 31,   2021 ,  2020  and 2019 , respectively. The changes in contract transaction price were from items such as executed or estimated change orders and unresolved contract modifications and claims. As of December 31,   2021  and  2020 , the aggregate claim recovery estimates included in contract asset and liability balances were approximately $ 39.0  million and $ 37.7  million, respectively. The components of the contract asset balances as of the respective dates were as follows (in thousands):   December 31,   2021     2020   Costs in excess of billings and estimated earnings   $ 14,158     $ 26,199   Contract retention     131,279       105,898   Total contract assets   $ 145,437     $ 132,097   The following tables summarize changes in the contract asset balance for the periods presented (in thousands):   Balance at December 31, 2020   $ 132,097   Change in the measure of progress on projects, net     547,450   Revisions in estimates, net     ( 36,899 ) Billings     ( 461,294 ) Receipts related to contract retention     ( 35,917 ) Balance at December 31, 2021   $ 145,437     Balance at December 31, 2019   $ 163,578   Change in the measure of progress on projects, net     656,460   Revisions in estimates, net     ( 41,136 ) Billings     ( 606,982 ) Receipts related to contract retention     ( 39,823 ) Balance at December 31, 2020   $ 132,097     F- 18 Table of Contents   GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED The components of the contract liability balances as of the respective dates were as follows (in thousands): December 31,   2021     2020   Billings in excess of costs and estimated earnings, net of retention   $ 169,542     $ 135,788   Provisions for losses     30,499       27,137   Total contract liabilities   $ 200,041     $ 162,925   The following table summarizes changes in the contract liability balance for the periods presented (in thousands): Balance at December 31, 2020   $ 162,925   Change in the measure of progress on projects, net     ( 1,770,667 ) Revisions in estimates, net     13,975   Billings     1,790,446   Change in provision for loss, net     3,362   Balance at December 31, 2021   $ 200,041     Balance at December 31, 2019   $ 85,293   Change in the measure of progress on projects, net     ( 1,748,830 ) Revisions in estimates, net     ( 3,856 ) Billings     1,807,911   Change in provision for loss, net     22,407   Balance at December 31, 2020   $ 162,925     7. Receivables, net Receivables include billed and unbilled amounts for services provided to clients for which we have an unconditional right to payment as of the end of the applicable period and generally do not bear interest. The following table presents major categories of receivables (in thousands): December 31,     2021       2020   Contracts completed and in progress:                 Billed   $ 236,053     $ 220,621   Unbilled     126,371       120,144   Total contracts completed and in progress     362,424       340,765   Material sales     43,746       47,067   Other     59,496       51,382   Total gross receivables     465,666       439,214   Less: allowance for credit losses     1,078       1,656   Total net receivables   $ 464,588     $ 437,558   Included in other receivables at  December 31,   2021  and  2020  were items such as estimated recovery from back charge claims, notes receivable, fuel tax refunds and income tax refunds. Other receivables at December 31, 2021 also included $ 20.4 million of working capital contributions in the form of a loan to a partner in one of our unconsolidated joint ventures that bears interest at 6.25 % per annum. No  receivable individually exceeded 10 % of total net receivables at any of these dates. F- 19 Table of Contents   GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED   8. Fair Value Measurement The following tables summarize significant assets and liabilities measured at fair value in the consolidated balance sheets on a recurring basis for each of the fair value levels (in thousands):     Fair Value Measurement at Reporting Date Using   December 31, 2021   Level 1     Level 2     Level 3     Total   Cash equivalents                                 Money market funds   $ 65,233     $ —     $ —     $ 65,233   Total assets   $ 65,233     $ —     $ —     $ 65,233   Accrued and other current liabilities                                 Interest rate swap   $ —     $ 3,514     $ —     $ 3,514   Total liabilities   $ —     $ 3,514     $ —     $ 3,514                                     December 31, 2020                                 Cash equivalents                                 Money market funds   $ 70,483     $ —     $ —     $ 70,483   Total assets   $ 70,483     $ —     $ —     $ 70,483   Accrued and other current liabilities                                 Interest rate swap   $ —     $ 7,606     $ —     $ 7,606   Total liabilities   $ —     $ 7,606     $ —     $ 7,606   Interest Rate Swaps In connection with the Third Amended and Restated Credit Agreement (as discussed further in Note 14 ), we entered into  two  interest rate swaps with a combined initial notional amount of $ 150.0  million and an effective date of  May 2018 that mature in  May 2023 .  The interest rate swaps are designed to convert the interest rate on the term loan from a variable interest rate of LIBOR plus an applicable margin to a fixed rate of  2.76 % plus the same applicable margin. The interest rate swaps are measured at fair value on the consolidated balance sheets using the income approach, which discounts the future net cash settlements expected under the derivative contracts to a present value. These valuations primarily utilize indirectly observable inputs, including contractual terms, interest rates and yield curves observable at commonly quoted intervals. The interest rate swaps were designated as cash flow hedges through the  three  months ended  March 31, 2021. During the  three  months ended  June 30,  2021,  we determined that the interest rate swaps were  no  longer highly effective in offsetting changes to expected future cash flows on hedged transactions and were therefore de-designated as cash flow hedges. As a result of this de-designation, the $ 5.4  million unrealized loss recorded to accumulated other comprehensive loss prior to de-designation will continue to be amortized to interest expense through the maturity date of  May 2023.  The impact from the interest rate swap de-designation that was included in interest expense on the consolidated statements of operations was immaterial for the year ended December 31, 2021 . F- 20 Table of Contents   GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Commodity Swaps In December 2021, we entered into two commodity swaps designed as cash flow hedges for crude oil covering the period from April 2022 to October 2022 with a total notional value of $ 8.1  million. The financial statement impact during the year ended  December 31, 2021 was immaterial. Other Assets and Liabilities The carrying values and estimated fair values of our financial instruments that are not required to be recorded at fair value in the consolidated balance sheets were as follows (in thousands):  December 31,     2021     2020     Fair Value Hierarchy   Carrying Value     Fair Value     Carrying Value     Fair Value   Assets:                                   Held-to-maturity marketable securities (1) Level 1   $ 15,600     $ 15,459     $ 5,200     $ 5,200   Liabilities (including current maturities):                                   2.75% Convertible Notes (2),(3) Level 2   $ 207,354     $ 313,785     $ 200,303     $ 248,400   Credit Agreement - term loan (2) Level 3   $ 123,750     $ 124,598     $ 131,250     $ 133,030   ( 1 ) All marketable securities were classified as held-to-maturity and consisted of U.S. Government and agency obligations as of  December 31, 2021  and  2020 . ( 2 ) The fair value of the 2.75% Convertible Notes is based on the median price of the notes in an active market as of  December 31, 2021 and 2020. The fair value of the Credit Agreement term loan is based on borrowing rates available to us for long-term loans with similar terms, average maturities, and credit risk. See Note 14  for definitions of, and more information about the 2.75% Convertible Notes and Credit Agreement. ( 3 ) Excluded from carrying value is $ 22.6  million and $ 29.7  million of debt discount as of  December 31, 2021  and 2020 , respectively, related to the  2.75%  Convertible Notes (see Note  14 ). The carrying value of marketable securities approximates their fair value as determined by market quotes. Rates currently available to us for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt. The carrying value of receivables and other amounts arising out of normal contract activities, including retentions, which may be settled beyond one year, is estimated to approximate fair value.  At least annually, we measure certain nonfinancial assets and liabilities at fair value on a nonrecurring basis. As of  December 31, 2021  and  2020 , the nonfinancial assets and liabilities included our asset retirement and reclamation obligations, as well as assets and corresponding liabilities associated with performance guarantees. Asset retirement and reclamation obligations were measured using Level 3 inputs and performance guarantees were measured using Level 2 inputs. Asset retirement and reclamation obligations were initially measured using internal discounted cash flow calculations based upon our estimates of future retirement costs. To determine the fair value of the obligation, we estimate the cost for a third -party to perform the legally required reclamation including a reasonable profit margin. This cost is then increased for future estimated inflation based on the estimated years to complete and discounted to fair value using present value techniques with a credit-adjusted, risk-free rate. In estimating the settlement date, we evaluate the current facts and conditions to determine the most likely settlement date. We review reclamation obligations at least annually for a revision to the cost or a change in the estimated settlement date. Additionally, reclamation obligations are reviewed in the period that a triggering event occurs that would result in either a revision to the cost or a change in the estimated settlement date. See Note 11   for details of the asset retirement balances. We estimate our liability for performance guarantees for our unconsolidated construction joint ventures and line item joint ventures using estimated partner bond rates, which are Level 2 inputs, and include them in accrued expenses and other current liabilities (see Note 13 ) with a corresponding increase in equity in construction joint ventures in the consolidated balance sheets. See Note 1 for further discussion on performance guarantees. During the years ended December 31,  2021 and 2020, we had no material nonfinancial asset and liability fair value adjustments related to our continuing operations.       F- 21 Table of Contents   GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 9. Construction Joint Ventures We participate in various construction joint ventures. As discussed in Note 1,  we have determined that certain of these joint ventures are consolidated because they are VIEs and we are the primary beneficiary. We continually evaluate whether there are changes in the status of the VIEs or changes to the primary beneficiary designation of the VIE. Based on our assessments during the years ended December 31,   2021 ,  2020  and  2019 , we determined no change was required for existing joint ventures. Due to the joint and several nature of the performance obligations under the related owner contracts, if any of the partners fail to perform, we and the remaining partners, if any, would be responsible for performance of the outstanding work (i.e., we provide a performance guarantee). At December 31,   2021 , there was $ 0.7  billion of construction revenue to be recognized on unconsolidated and line item construction joint venture contracts of which $ 0.3  billion represented our share and the remaining $ 0.4  billion represented our partners’ share. We are not able to estimate amounts that may be required beyond the remaining cost of the work to be performed. These costs could be offset by billings to the customer or by proceeds from our partners’ corporate and/or other guarantees. See Note 13 for disclosure of the performance guarantee amounts recorded in the consolidated balance sheets and Note 1 for additional discussion regarding performance guarantees. Consolidated Construction Joint Ventures At  December 31,   2021 , we were engaged in  eight  active CCJV projects with total contract values ranging from $ 2.3  million to $ 436.3  million for a combined total of $ 1.6  billion of which our share was $ 939.8  million. As of December 31, 2021, our share of revenue remaining to be recognized on these CCJVs was $ 267.0  million and ranged from $ 0.6  million to $ 83.3  million by project. Our proportionate share of the equity in these joint ventures was between  50.0 % and  70.0 %. During the years ended  December 31,   2021 ,  2020  and  2019 , total revenue from CCJVs was $ 405.1  million, $ 312.5  million and $ 261.2  million, respectively. During the years ended  December 31,   2021 ,  2020  and  2019 , CCJVs used $ 4.1  million, $ 3.0  million and $ 13.1  million of operating cash flows, respectively. Unconsolidated Construction Joint Ventures As discussed in Note 1, where we have determined we are not the primary beneficiary of a joint venture but do exercise significant influence, we account for our share of the operations of unconsolidated construction joint ventures on a pro rata basis in revenue and cost of revenue in the consolidated statements of operations and in equity in construction joint ventures or accrued expenses and other current liabilities in the consolidated balance sheets. As of  December 31,   2021 , we were engaged in  nine  active unconsolidated joint venture projects with total contract values ranging from $ 13.7  million to $ 3.8  billion for a combined total of $ 10.7  billion of which our share was $ 3.0  billion. Our proportionate share of the equity in these unconsolidated joint ventures ranged from 20.0 % to 50.0 %. As of December 31,   2021 , our share of the revenue remaining to be recognized on these unconsolidated construction joint ventures was $ 180.2  million and ranged from $ 1.2  million to $ 43.2  million by project. The following is summary financial information related to unconsolidated construction joint ventures (in thousands): December 31,   2021     2020   Assets                 Cash, cash equivalents and marketable securities   $ 182,891     $ 181,889   Other current assets (1)     661,342       767,803   Noncurrent assets     103,579       164,022   Less partners’ interest     633,634       751,125   Granite’s interest (1),(2)   $ 314,178     $ 362,589   Liabilities                 Current liabilities   $ 307,674     $ 482,562   Less partners’ interest and adjustments (3)     154,771       226,308   Granite’s interest   $ 152,903     $ 256,254   Equity in construction joint ventures (4)   $ 161,275     $ 106,335   ( 1 ) I ncluded in this balance and in accrued and other current liabilities on the consolidated balance sheets as of December 31,   2021  and  2020 was $ 82.1   million and $ 82.3  million, respectively, related to performance guarantees (see Note 13 ). ( 2 )  Included in this balance as of December 31,   2021  and  2020  was $ 103.8  million and $ 88.7  million, respectively, related to Granite’s share of estimated cost recovery of customer affirmative claims. In addition, this balance included $ 10.7  million and $ 13.1  million related to Granite’s share of estimated recovery of back charge claims as of December 31,   2021  and  2020 , respectively. ( 3 ) Partners’ interest and adjustments includes amounts to reconcile total net assets as reported by our partners to Granite’s interest adjusted to reflect our accounting policies and estimates primarily related to contract forecast differences. ( 4 ) Included in this balance and in accrued expenses and other current liabilities on the consolidated balance sheets was  $ 28.6  milli on and $ 82.5  million as of December 31,   2021  and  2020 , respectively, related to deficits in unconsolidated construction joint ventures which includes provisions for losses.   F- 22 Table of Contents   GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED   Years Ended December 31,   2021     2020     2019   Revenue                         Total   $ 820,586     $ 918,716     $ 1,471,157   Less partners’ interest and adjustments (1)     526,522       559,480       1,049,797   Granite’s interest   $ 294,064     $ 359,236     $ 421,360   Cost of revenue                         Total   $ 835,899     $ 1,193,358     $ 1,900,524   Less partners’ interest and adjustments (1)     540,854       782,683       1,357,852   Granite’s interest   $ 295,045     $ 410,675     $ 542,672   Granite’s interest in gross loss   $ ( 981 )   $ ( 51,439 )   $ ( 121,312 ) Net Loss                         Total   $ ( 15,533 )   $ ( 274,410 )   $ ( 422,457 ) Less partners’ interest and adjustments (1)     ( 14,765 )     ( 222,924 )     ( 301,846 ) Granite’s interest in net loss   $ ( 768 )   $ ( 51,486 )   $ ( 120,611 ) ( 1 ) Partners’ interest and adjustments includes amounts to reconcile total revenue and total cost of revenue as reported by our partners to Granite’s interest adjusted to reflect our accounting policies and estimates primarily related to contract forecast and/or actual differences. During each of the years ended December 31,   2021 , and  2020 , there was a material variance on one project and during the year ended December 31,   2019  there were material variances on three  projects between our estimated and/or actual total revenue and cost of revenue when compared to that of our partners’ due to timing of recognition from differing accounting policies and public company quarterly reporting requirements. The joint venture net loss amounts exclude our corporate overhead required to manage the joint ventures and include taxes only to the extent the applicable states have joint venture level taxes. Line Item Joint Ventures As of  December 31,   2021 , we were engaged in  three  active line item joint venture construction projects with a total contract value of $ 337.1  million of which our portion was $ 221.0  million. As of  December 31,   2021 , our share of revenue remaining to be recognized on these line item joint ventures was $ 70.9 million. During the years ended  December 31,   2021 , 2020  and  2019 , our portion of revenue from line item joint ventures was $ 67.8  million, $ 80.8  million and $ 18.7  million, respectively.   10. Investments in Affiliates Our investments in affiliates balance is related to our investments in unconsolidated non-construction entities that we account for using the equity method of accounting, including investments in real estate entities and an asphalt terminal entity. The real estate entities were formed to accomplish specific real estate development projects in which our wholly-owned subsidiary, Granite Land Company, participates with third -party partners. The asphalt terminal entity is a 50 % interest in a limited liability company which owns and operates an asphalt terminal and operates an emulsion plant in Nevada. We have determined that the real estate entities are not consolidated because although they are VIEs, we are not the primary beneficiary. We have determined that the asphalt terminal entity is not consolidated because it is  not VIE and we do not hold the majority voting interest. As such, this entity is accounted for using the equity method. Our investments in affiliates balance consists of equity method investments in the following types of entities (in thousands): December 31,   2021     2020   Real estate   $ 9,619     $ 12,777   Asphalt terminal     13,749       14,860   Total investments in affiliates   $ 23,368     $ 27,637     F- 23 Table of Contents   GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED The following table provides summarized balance sheet information for our affiliates accounted for under the equity method on a combined basis (in thousands): December 31,   2021     2020   Current assets   $ 34,374     $ 28,367   Noncurrent assets     78,829       72,005   Total assets   $ 113,203     $ 100,372   Current liabilities   $ 23,685     $ 12,517   Long-term liabilities (1)     48,104       35,786   Total liabilities   $ 71,789     $ 48,303   Net assets   $ 41,414     $ 52,069   Granite’s share of net assets   $ 23,368     $ 27,637   ( 1 ) The balance primarily related to local bank debt for equipment purchases and debt associated with our real estate investments.  Of the $ 113.2  million in total assets as of December 31,   2021 , we had investments in  two  real estate entities with total assets of $ 30.0  million and $ 51.2  million and the asphalt terminal entity had total assets of $ 32.0  million. As of December 31,   2021  and 2020, all of the equity method investments in real estate affiliates were in residential real estate in Texas. As of December 31,   2021 , our percent ownership in the real estate entities ranged from 10 % to 25 %. The following table provides summarized statements of operations information for our affiliates accounted for under the equity method on a combined basis (in thousands): Years Ended December 31,   2021     2020     2019   Revenue   $ 57,838     $ 49,707     $ 70,439   Gross profit   $ 16,944     $ 21,563     $ 23,418   Income before taxes   $ 11,584     $ 15,653     $ 20,761   Net income   $ 11,584     $ 15,653     $ 20,761   Granite’s interest in affiliates’ net income   $ 3,465     $ 5,191     $ 6,991     11. Property and Equipment, net Balances of major classes of assets and total accumulated depreciation and depletion are included in property and equipment, net in the consolidated balance sheets as follows (in thousands): December 31,   2021     2020   Equipment and vehicles   $ 870,672     $ 812,388   Quarry property     191,982       206,073   Land and land improvements     108,518       117,714   Buildings and leasehold improvements     96,180       94,754   Office furniture and equipment     75,043       69,828   Property and equipment     1,342,395       1,300,757   Less: accumulated depreciation and depletion     908,891       879,608   Property and equipment, net   $ 433,504     $ 421,149   Depreciation and depletion expense from continuing operations primarily included in cost of revenue in our consolidated statements of operations was $ 67.1  million, $ 62.7  million and $ 63.7  million for the years ended December 31,   2021 , 2020  and 2019 , respectively. In December  2021,  we completed a sale-leaseback transaction associated with a property in California. The sale of this property resulted in a reduction in net property and equipment of $ 3.1  million and a $ 1.4 million addition to both right of use assets and lease liabilities on the consolidated balance sheets, as well as a $ 19.8  million gain on sales of property and equipment on the consolidated statements of operations. As discussed in Note 1, we have asset retirement obligations, which are liabilities associated with our legally required obligations to reclaim owned and leased quarry property and related facilities. As of  December 31,   2021  and 2020 , $ 1.7  million and $ 6.0  million, respectively, of our asset retirement obligations were included in accrued expenses and other current liabilities and $ 23.3  million and $ 17.9  million, respectively, were included in other long-term liabilities in the consolidated balance sheets. Of the amount included in other long-term liabilities as of  December 31,   2021 , $ 8.2  million is expected to be settled by 2027 and the remaining is expected to be settled thereafter.  F- 24 Table of Contents   GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED The following is a reconciliation of these asset retirement obligations (in thousands): Years Ended December 31,   2021     2020   Beginning balance   $ 23,853     $ 21,750   Revisions to estimates     1,596       2,484   Liabilities settled     ( 1,708 )     ( 1,521 ) Accretion     1,209       1,140   Ending balance   $ 24,950     $ 23,853     12. Intangible Assets Indefinite-lived Intangible Assets Indefinite-lived intangible assets primarily consist of goodwill. The following table presents the goodwill balance by reportable segment (in thousands): December 31,   2021     2020   Construction   $ 51,769     $ 51,769   Materials     1,946       1,946   Total goodwill   $ 53,715     $ 53,715   Amortized Intangible Assets As of December 31, 2021 and 2020,  amortized intangible assets included in other noncurrent assets in the consolidated balance sheets consisted of $ 9.5  million and $ 10.6  million, respectively, net of accumulated amortization of $ 14.5  million and $ 13.5  million, respectively, related to permits for our continuing operations. The net amortization expense for continuing operations related to amortized intangible assets for each of the years ended December 31,   2021 , 2020  and 2019  was $ 1.0  million and was primarily included in cost of revenue in the consolidated statements of operations. Amortization expense based on the amortized intangible assets balance at December 31,   2021  is expected to be $ 1.0  million in each year from  2022  to  2026  and $ 4.5  million thereafter. F- 25 Table of Contents   GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED   13. Accrued Expenses and Other Current Liabilities (in thousands) : December 31,   2021     2020   Accrued insurance   $ 76,999     $ 65,404   Deficits in unconsolidated construction joint ventures (see Note 9)     28,636       82,463   Payroll and related employee benefits     87,460       100,035   Performance guarantees (see Note 1)     82,112       82,280   Accrued legal settlement (see Note 20)     129,000       —   Other     48,622       51,565   Total   $ 452,829     $ 381,747   Other includes short-term lease liability, dividends payable, warranty reserves, asset retirement obligations, remediation reserves and other miscellaneous accruals, none of which are greater than 5% of total current liabilities.   14. Long-Term Debt (in thousands): December 31,   2021     2020   2.75% Convertible Notes   $ 207,354     $ 200,303   Credit Agreement - term loan     123,750       131,250   Debt issuance costs and other     8,814       7,247   Total debt     339,918       338,800   Less current maturities     8,727       8,278   Total long-term debt   $ 331,191     $ 330,522   The aggregate minimum principal maturities of long-term debt related to balances at December 31,   2021  excluding debt issuance costs, including current maturities and the $ 22.6  million unamortized debt discount related to the 2.75 % Convertible Notes are as follows: $ 8.9  million in  2022 ; $ 117.7  million in 2023 ; $ 231.5  million in 2024 ; $ 1.1  million in 2025  and $ 6.8  million in  2026 . Credit Agreement Granite entered into the Third Amended and Restated Credit Agreement dated May 31, 2018 which provides for, among other things, (i) a $ 150.0 million term loan and a $ 350.0 million revolving credit facility; (ii) an increase to the revolving credit facility and/or term loan at the option of the Company, in an aggregate maximum amount up to $ 200.0 million subject to the lenders providing the additional commitments; (iii) a maturity date of May 31, 2023 ( the “Maturity Date”); and (iv) the elimination of the stipulation to have a $ 150.0 million minimum cash balance before and after a dividend payment. There is an aggregate sublimit for letters of credit of $ 100.0 million and customary affirmative, restrictive and financial covenants. In 2019, we entered into two amendments which, among other things, (i) amended the definition of Consolidated EBITDA which is used in the Consolidated Leverage Ratio financial covenant calculation; and (ii) permitted the Company to issue the 2.75% Convertible Notes (as defined below), enter into the Hedge Option (as defined below) and execute the related warrant transaction. In 2020, we entered into three amendments which (i) reduced the revolving credit facility from $ 350.0 million to $ 275.0 million; (ii) amended the definition of Applicable Rate from 2.00 % to 3.00 % for loans bearing interest based on LIBOR; (iii) amended the definition of Consolidated EBITDA which is used in the Consolidated Leverage Ratio financial covenant calculation; (iv) modified certain financial covenants to allow for investments in certain large projects during the four fiscal quarters during 2020; (v) provided the Company additional time to deliver its annual and quarterly financial statements; and (vi) provided for a reversion in the applicable rate from 3.00 % to the applicable rate table in the Credit Agreement upon filing of our Quarterly Report on Form 10 -Q for the quarter ending March 31, 2021. On February 19, 2021, we entered into the Limited Waiver and Amendment No. 6 to the Third Amended and Restated Credit Agreement which waived any defaults or events of defaults that may have arisen in connection with the Company’s Restatement during the periods covered by the Restatement, the failure to comply with a financial covenant and any right of the lenders to collect interest at the default rate with respect to the waived defaults and events of default. We refer to the Third Amended and Restated Credit Agreement dated  May 31, 2018 and all subsequent amendments listed above as “Credit Agreement.”  The Credit Agreement consists of a term loan and a revolving credit facility.  The term loan requires that Granite repay 1.25 % of the principal balance each quarter until the Maturity Date, at which point the remaining balance is due. As of both  December 31,   2021  and 2020 , $ 7.5  million of the term loan balance was included in current maturities of long-term debt on the consolidated balance sheets and the remaining $ 116.3  million and $ 123.8  million, respectively, was included in long-term debt. As of December 31,   2021 , the total unused availability under the Credit Agreement was $ 232.0 million resulting from $ 43.0 million in issued and outstanding letters of credit and no amount drawn under the revolving credit facility. The letters of credit will expire between March 2022 and December  2025. During the year ended  December 31,   2020, $ 50.0 million in draws were made under the revolving credit facility and none were outstanding as of December 31, 2020. Borrowings under the Credit Agreement bear interest at LIBOR, subject to a 0.75 % floor or a base rate (at our option), plus an applicable margin based on the Consolidated Leverage Ratio (as defined in the Credit Agreement) calculated quarterly. LIBOR varies based on the applicable loan term, market conditions and other external factors. The applicable margin was  1.75 % for loans bearing interest based on LIBOR and 0.75 % for loans bearing interest at the base rate at December 31,   2021 . Accordingly, the effective interest rate at  December 31,   2021  using three -month LIBOR and the base rate was 2.50 % and 4.00 %, respectively, and we elected to use LIBOR for the term loan. Using three -month LIBOR plus the applicable margin, future interest payments are expected to be $ 5.9 million in 2022 and $ 2.4 million 2023. Convertible Notes 2.75% Convertible Notes In November 2019, we issued an aggregate principal amount of $ 230.0 million of convertible senior notes (the “2.75% Convertible Notes”) at an interest rate of 2.75 % per annum payable semiannually in arrears on May  1 and November  1 of each year, beginning on May  1, 2020 and maturing on November  1, 2024, unless earlier converted, redeemed or repurchased. The 2.75% Convertible Notes will be convertible at the option of the holders prior to May 1, 2024 only during certain periods and upon the occurrence of certain events. Thereafter, the 2.75% Convertible Notes will be convertible at the option of the holders at any time until October 30, 2024.  Future interest payments are expected to be $ 6.3 million each year through 2024. The initial conversion rate applicable to the 2.75% Convertible Notes is 31.7776 shares of Granite common stock per $1,000 principal amount of 2.75% Convertible Notes, which is equivalent to an initial conversion price of approximately $ 31.47 per share of Granite common stock. Upon conversion, we will pay or deliver shares of Granite common stock or a combination of cash and shares of Granite common stock, at our election. In addition, upon the occurrence of a “make-whole fundamental change” as defined in the indenture governing the 2.75% Convertible Notes, (the “Indenture”) or if we deliver a notice of redemption, we will, in certain circumstances, increase the conversion rate for a holder that elects to convert its 2.75% Convertible Notes in connection with such a make-whole fundamental change or notice of redemption. On or after November  7, 2022, we have the option to redeem for cash all or any portion of the 2.75% Convertible Notes if the last reported sale price of our common stock is equal to or greater than 130 % of the conversion price for a specified period of time. Upon the occurrence of a “fundamental change” as defined in the Indenture, holders may require us to repurchase for cash all or any portion of their 2.75% Convertible Notes at a price equal to 100 % of the principal amount plus any accrued and unpaid interest. In addition, as described in the Indenture, certain events of default including, but not limited to, bankruptcy, insolvency or reorganization, may result in the 2.75% Convertible Notes becoming due and payable immediately.  The cash received from the issuance of the  2.75% Convertible Notes was separated into a $ 192.6 million liability component and a $ 37.4  million (less $ 9.5  million of taxes) equity component on the consolidated balance sheets at the time of issuance based on the fair value of a similar liability that does not have an associated convertible feature. The $ 37.4 million difference between the principal amount and the $ 192.6 million (“debt discount”) will increase the debt balance over the expected life of the 2.75 % Convertible Notes. The $ 6.4 million in third party offering costs (“debt issuance costs”) reduced the debt balance at original issuance and will increase the debt balance over the expected life of the 2.75% Convertible Notes. As of December 31,   2021  and 2020, the carrying amount of the liability component was $ 207.4  million and $ 200.3  million, respectively, excluding $ 3.2  million and $ 4.3 million, respectively, of debt issuance costs, including $ 14.8  million and $ 7.7 million, respectively, of amortized debt discount. As of December 31, 2021 and 2020, the remaining unamortized debt discount was $ 22.6  million and $ 29.7  million, respectively. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. The debt discount has been recorded to interest expense using an effective interest rate of 6.62 % over the expected life of the  2.75% Convertible Notes. The debt issuance costs have been recorded to interest expense over the expected life of the  2.75% Convertible Notes. During the years ended December 31,  2021  and 2020, we recorded $ 7.1  million and $ 6.6  million, respectively, of amortization related to the debt discount to interest expense in our consolidated statements of operations and $ 2.4  million and $ 2.1  million, respectively, of amortization related to debt issuance costs and fees to other (income) expense, net in our consolidated statements of operations. Combined, the amortization of the debt discount and debt issuance costs were presented as amortization related to the 2.75% Convertible Notes on our consolidated statements of cash flows.  On October  29, 2019, in connection with the offering of our 2.75% Convertible Notes, we entered into a purchased equity derivative instrument for $ 37.4  million (less $ 9.5  million of taxes) to offset the potential common share dilution of any shares above $ 31.47  (“Hedge Option”) and sold warrants for $ 11.2  million to reduce the cost of the Hedge Option with potential common share dilution above $ 53.44 . The net costs incurred in connection with the Hedge Option and warrants were recorded as an increase to additional paid-in capital on our consolidated balance sheets.  F- 26 Table of Contents   GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Real Estate Indebtedness Our unconsolidated investments in real estate entities are subject to mortgage indebtedness. This indebtedness is non-recourse to Granite, but is recourse to the real estate entity. The terms of this indebtedness are typically renegotiated to reflect the evolving nature of the real estate project as it progresses through acquisition, entitlement and development. Modification of these terms may include changes in loan-to-value ratios requiring the real estate entity to repay portions of the debt. This debt is non-recourse to Granite, but it is recourse to the affiliates. The debt associated with our unconsolidated non-construction entities is disclosed in Note 10. Covenants and Events of Default Our Credit Agreement requires us to comply with various affirmative, restrictive and financial covenants, including the financial covenants described below. Our failure to comply with these covenants would constitute an event of default under the Credit Agreement. Additionally, our failure to pay principal, interest or other amounts when due or within the relevant grace period on our 2.75% Convertible Notes or our Credit Agreement would constitute an event of default under the indenture governing our 2.75% Convertible Notes or the Credit Agreement. A default under our Credit Agreement could result in (i) us no longer being entitled to borrow under such facility; (ii) termination of such facility; (iii) the requirement that any letters of credit under such facility be cash collateralized; (iv) acceleration of amounts owed under the Credit Agreement; and/or (v) foreclosure on any lien securing the obligations under such facility. A default under the indenture governing our 2.75% Convertible Notes could result in acceleration of the maturity of the notes. The most significant financial covenants under the terms of our Credit Agreement require the maintenance of a minimum Consolidated Interest Coverage Ratio and a maximum Consolidated Leverage Ratio. As of December 31,   2021 , the Consolidated Leverage Ratio was 2.39 , which did not exceed the maximum of 3.00 . Our Consolidated Interest Coverage Ratio was 6.69 , which exceeded the minimum of 4.00 . As of December 31,   2021 , we were in compliance with all covenants contained in the  Credit Agreement . We are not aware of any non-compliance by any of our unconsolidated real estate entities with the covenants contained in their debt agreements.   15. Leases Our continuing operations have leases for office and shop space, as well as for equipment primarily utilized in our construction projects. As of  December 31,   2021 , our lease contracts were primarily classified as operating leases and had terms ranging from month-to-month to  20  years. As of  December 31,   2021  and 2020, ROU assets and long term lease liabilities were separately presented and short term lease liabilities of $ 18.8 million and $ 16.3  million, respectively, were included in accrued expenses and other current liabilities on our consolidated balance sheets. As of  December 31,   2021 , we had  no  lease contracts that had  not  yet commenced but created significant rights and obligations. Lease expense was $ 18.6  million, $ 17.9  million and $ 15.0  million for the years ended  December 31,   2021 ,  2020  and 2019 , respectively. As of  December 31,   2021  and  2020  our weighted-average remaining lease term was 3.72  years and 4.45  years, respectively, and the weighted-average discount rate was  3.58 % and 3.88 %, respectively. As of  December 31,   2021 , the lease liability is equal to the present value of the remaining lease payments, discounted using the incremental borrowing rate on our secured debt, using one  maturity discount rate that is updated quarterly, as it is  not  materially different than the discount rates applied to each of the leases in the portfolio. The following table summarizes the maturities of our undiscounted lease liabilities outstanding as of  December 31,   2021  (in thousands): 2022   $ 20,556   2023     15,395   2024     8,049   2025     2,949   2026     1,982   2027 through 2035     7,874   Total future minimum lease payments   $ 56,805   Less imputed interest     ( 4,849 ) Total   $ 51,956   Royalties Excluded from the table above are minimum royalty requirements under all contracts, primarily quarry property, in effect at December 31,   2021 which are payable as follows: $ 2.0  million in 2022 ; $ 1.5  million in 2023 ; $ 1.4  million in 2024 ; $ 0.7  million in 2025 ; $ 0.7  million in 2026 ; and $ 2.3  million thereafter.   16. Employee Benefit Plans Profit Sharing and 401 (k) Plan : The Profit Sharing and 401 (k) Plan (the “401 (k) Plan”) is a defined contribution plan covering all employees except employees covered by collective bargaining agreements and certain employees of our CCJVs. Each employee’s combined pre-tax 401 (k) and post-tax (Roth) contributions cannot exceed 50 % of their eligible pay or Internal Revenue Code annual contribution limits. Our 401 (k) matching contributions can be up to 6 % of an employee’s gross pay at the discretion of the Board of Directors. Our 401 (k) matching contributions to the 401 (k) Plan related to our continuing operations for the years ended December 31,   2021 , 2020  and 2019  were $ 14.2  million, $ 13.3 million and $ 12.8 million, respectively. Profit sharing contributions from the Company may be made to the 401 (k) Plan in an amount determined by the Board of Directors. We made no profit sharing contributions during the years ended December 31,   2021 , 2020  and 2019 . Non-Qualified Deferred Compensation Plan : We offer a Non-Qualified Deferred Compensation Plan (“NQDC Plan”) to a select group of our highly compensated employees and non-employee directors. The NQDC Plan provides participants the opportunity to defer payment of certain compensation as defined in the NQDC Plan. In October 2008, a Rabbi Trust was established to fund our NQDC Plan obligation and was fully funded as of December 31,   2021 . The assets held by the Rabbi Trust at December 31,   2021  and  2020  are substantially in the form of Company-owned life insurance and are included in other noncurrent assets in the consolidated balance sheets. As of December 31,   2021 , there were 57 active participants in the NQDC Plan. NQDC Plan obligations were $ 32.7  million and $ 30.0 million as of  December 31,   2021  and  2020 , respectively, and were primarily included in other long-term liabilities on the consolidated balance sheets. In addition, we had supplemental retirement benefits of $ 4.9  million and $5.3  million in other long-term liabilities on the consolidated balance sheets as of December 31,  2021  and 2020, respectively. F- 27 Table of Contents   GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Multi-employer Pension Plans : As of  December 31,   2021 , three of our wholly-owned subsidiaries within our continuing operations, Granite Construction Company, Granite Construction Northeast, Inc. and Granite Industrial, Inc. contribute to various multi-employer pension plans on behalf of union employees. The risks of participating in these multiemployer plans are different from single-employer plans in the following aspects:   • Assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other participating employers.   • If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.   • If we chose to stop participating in some of the multi-employer plans, we may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability. The following table presents our participation in these plans (dollars in thousands):           Pension Protection Act (“PPA”) Certified Zone Status (1)     Contributions       Pension Trust Fund   Pension Plan Employer Identification Number   2020 2019 FIP / RP Status Pending / Implemented (2)   2021     2020     2019   Surcharge Imposed Expiration Date of Collective Bargaining Agreement (3) Operating Engineers Pension Trust Fund     95 - 6032478   Yellow Yellow Yes   $ 5,266     $ 5,239     $ 4,508   No 6/30/2022 Locals 302 and 612 IUOE-Employers Construction Industry Retirement Plan     91 - 6028571   Green Green No     336       263       5,479   No 5/31/2022 3/31/2023 5/31/2024 Pension Trust Fund for Operating Engineers Pension Plan     94 - 6090764   Yellow Yellow Yes     10,095       10,001       10,569   No 6/30/2022 3/31/2023 6/30/2023 9/30/2023 2/28/2024 6/30/2024 10/31/2024 3/31/2025 All other funds (54 as of December 31, 2021)                   23,400       22,264       23,660                   Total contributions:   $ 39,097     $ 37,767     $ 44,216       ( 1 ) The most recent PPA zone status available in 2021 and 2020  is for the plan’s year-end during 2020  and 2019 , respectively. The zone status is based on information that we received from the plan and is certified by the plan’s actuary. Among other factors, plans in the red zone are generally less than 65 percent funded, plans in the orange zone are less than 80 percent funded and have an Accumulated Funding Deficiency in the current year or projected into the next six years, plans in the yellow zone are less than 80 percent funded, and plans in the green zone are at least 80 percent funded. ( 2 ) The “FIP/RP Status Pending/Implemented” column indicates plans for which a financial improvement plan (“FIP”) or a rehabilitation plan (“RP”) is either pending or has been implemented. ( 3 ) Lists the expiration date(s) of the collective-bargaining agreement(s) to which the plans are subject. Pension trust funds with a range of expiration dates have various collective bargaining agreements.   Based upon the most recently available annual reports, the Company’s contribution to each of the individually significant plans listed in the table above was less than 5% of each plan’s total contributions. We currently have no intention of withdrawing from any of the multi-employer pension plans in which we participate that would result in a significant withdrawal liability. In addition, we do not have any significant future obligations or funding requirements related to these plans other than the ongoing contributions that are paid as hours are worked by plan participants.   17. Shareholders’ Equity Stock-based Compensation: On June 2, 2021, the Company’s stockholders approved the 2021 Equity Incentive Plan (the “2021 Plan”), which replaced the Amended and Restated 2012 Equity Incentive Plan (the “2012 Plan”) and no further awards may be granted under the 2012 Plan. The 2021 Plan provides for the issuance of restricted stock, RSUs and stock options to eligible employees and to members of our Board of Directors. A total of 2,915,665   shares of our  common stock have been reserved for issuance under the 2021 Plan of wh ich 2,321,541  remained av ailable as of December 31,   2021 . During the years ended December 31,   2021 , 2020  and 2019 , we did not grant any stock options or restricted stock awards and as of  December 31,   2021 , there were no stock options or restricted stock awards outstanding. Restricted Stock Units: RSUs are issued for compensatory purposes. RSU stock compensation cost is measured at our common stock’s fair value based on the market price at the date of grant. We recognize stock compensation cost only for RSUs that we estimate will ultimately vest. We estimate the number of shares that will ultimately vest at each grant date based on our historical experience and adjust stock compensation cost based on changes in those estimates over time. RSU stock compensation cost is recognized ratably over the shorter of the vesting period (generally ranging from immediate vesting to three years) or the period from grant date to the first maturity date after the holder reaches age 62 and has completed certain specified years of service, when all RSUs become fully vested. Vesting of RSUs is not subject to any market or performance conditions and vesting provisions are at the discretion of the Compensation Committee. A recipient of RSUs  may not sell or otherwise transfer unvested RSUs and, in the event a recipient’s employment or board service is terminated prior to the end of the vesting period, any unvested RSUs are surrendered to us, subject to limited exceptions. A summary of the changes in our RSUs during the years ended  December 31,   2021 , 2020  and 2019  is as follows (shares in thousands): Years Ended December 31,   2021     2020     2019       RSUs     Weighted-Average Grant-Date Fair Value per RSU     RSUs     Weighted-Average Grant-Date Fair Value per RSU     RSUs     Weighted-Average Grant-Date Fair Value per RSU   Outstanding, beginning balance     601     $ 24.96       387     $ 43.99       443     $ 47.65   Granted     254       40.34       462       12.89       241       43.12   Vested     ( 235 )     28.77       ( 190 )     34.36       ( 263 )     48.63   Forfeited     ( 67 )     22.50       ( 58 )     24.76       ( 34 )     50.65   Outstanding, ending balance     553     $ 30.09       601     $ 24.96       387     $ 43.99   Compensation cost related to continuing operations RSUs was $ 6.1  million ($ 4.5  million net of statutory tax rate), $ 5.9  million ($ 4.4  million net of statutory tax rate), and $ 9.4  million ($ 7.0  million net of statutory tax rate) for the years ended  December 31,   2021 , 2020  and 2019 , respectively. The grant date fair value of RSUs vested during the years ended  December 31,   2021 , 2020  and 2019  was $ 6.8  million, $ 6.5  million and $ 12.7  million, respectively. As of December 31,   2021 , there was $ 6.6  million of unrecognized compensation cost related to continuing operations RSUs which will be recognized over a remaining weighted-average period of  1.4  years. 401 (k) Plan: As of December 31,   2021 , the 401 (k) Plan owned 1,059,941  shares of our common stock. Dividends on shares held by the 401 (k) Plan are charged to retained earnings and all shares held by the 401 (k) Plan are treated as outstanding in computing our earnings per share. Share Purchase Program: As announced on April 29, 2016, on April 7, 2016, the Board of Directors authorized us to repurchase up to $ 200.0 million of our common stock at management’s discretion (the “2016 authorization”). As part of the 2016 authorization, we established a plan to facilitate common stock repurchases. We did not purchase shares under the share purchase program in any of the periods presented. As of December 31,   2021 , $ 157.2  million of the 2016 authorization remained available. As announced on February 3, 2022, on February 1, 2022, the Board of Directors authorized us to purchase up to $ 300.0 million of our common stock at management’s discretion (the “2022  authorization”). The 2022 authorization replaced the 2016 authorization, including the amount available for repurchase, and no further repurchases will take place under the 2016 authorization. The specific timing and amount of any future repurchases will vary based on market conditions, securities law limitations and other factors.   18. Weighted Average Shares Outstanding and Net Income (Loss) Per Share The following table presents a reconciliation of the weighted average shares of common stock used in calculating basic and diluted net income (loss) per share as well as the calculation of basic and diluted net income (loss) per share (in thousands except per share amounts): Years Ended December 31,     2021       2020       2019   Numerator (basic and diluted)                         Net income (loss) from continuing operations allocated to common shareholders   $ ( 577 )   $ 19,282     $ ( 31,425 ) Net income (loss) from discontinued operations     10,673       ( 164,399 )     ( 28,766 ) Net income (loss) allocated to common shareholders   $ 10,096     $ ( 145,117 )   $ ( 60,191 )                           Denominator                         Weighted average common shares outstanding, basic     45,788       45,614       46,559   Dilutive effect of RSUs and convertible notes (1)(2)     —       589       —   Weighted average common shares outstanding, diluted     45,788       46,203       46,559                             Basic:                         Net income (loss) from continuing operations per share   $ ( 0.01 )   $ 0.42     $ ( 0.67 ) Net income (loss) from discontinued operations per share     0.23       ( 3.60 )     ( 0.62 ) Net income (loss) per share   $ 0.22     $ ( 3.18 )   $ ( 1.29 )                           Diluted:                         Net income (loss) from continuing operations per share   $ ( 0.01 )   $ 0.42     $ ( 0.67 ) Net income (loss) from discontinued operations per share     0.23       ( 3.56 )     ( 0.62 ) Net income (loss) per share   $ 0.22     $ ( 3.14 )   $ ( 1.29 ) ( 1 ) Due to the net losses from continuing operations for the years ended December 31,   2021  and 2019, RSUs representing approximately 533,000  and  388,000  shares, respectively, have been excluded from the number of shares used in calculating diluted net income (loss) per share, as their inclusion would be antidilutive. ( 2 ) The number of shares used in calculating diluted net income (loss) per share for the year ended December 31, 2021  excluded the potential dilution from the  2.75 % Convertible Notes converting into shares of common stock due to the net loss from continuing operations for the period. The number of shares used in calculating diluted net income per share for the years ended  December 31,   2020 and 2019  excluded potential dilution from the 2.75% Convertible Notes converting into shares of common stock since the average stock price did not exceed $ 31.47 .  (See Note 14  for further details).   19. Income Taxes The following is a summary of the income (loss) from continuing operations before provision for (benefit from) income taxes (in thousands): Years Ended December 31,   2021     2020     2019   Domestic   $ ( 17,914 )   $ ( 292 )   $ ( 47,867 ) Foreign   8,418     8,437     7,643   Total income (loss) from continuing operations before provision for (benefit from) income taxes   $ ( 9,496 )   $ 8,145     $ ( 40,224 )   The following is a summary of the provision for (benefit from) income taxes on continuing operations (in thousands): Years Ended December 31,   2021     2020     2019   Federal:                         Current   $ 434     $ ( 9,151 )   $ 116   Deferred     ( 1,637 )     15,644       ( 12,085 ) Total federal     ( 1,203 )     6,493       ( 11,969 ) State:                         Current     ( 947 )     ( 1,109 )     719   Deferred     ( 569 )     3,938       ( 2,250 ) Total state     ( 1,516 )     2,829       ( 1,531 ) Foreign:                         Current     1,322       229       361   Deferred     160       376       851   Total foreign     1,482       605       1,212   Total provision for (benefit from) income taxes on continuing operations   $ ( 1,237 )   $ 9,927     $ ( 12,288 )   F- 28 Table of Contents   GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED The following is a reconciliation of our provision for (benefit from) income taxes on continuing operations based on the Federal statutory tax rate to our effective tax rate (dollars in thousands): Years Ended December 31,   2021     2020     2019   Federal statutory tax   $ ( 1,994 )     21.0 %   $ 1,681       21.0 %   $ ( 8,366 )     21.0 % State taxes, net of federal tax benefit     ( 1,412 )     14.9       3,056       38.2       ( 1,328 )     3.3   Foreign taxes     966       ( 10.2 )     915       11.4       1,395       ( 3.5 ) Percentage depletion deduction     ( 1,015 )     10.7       ( 1,096 )     ( 13.7 )     ( 932 )     2.3   Non-controlling interests     1,613       ( 17.0 )     4,423       55.3       ( 733 )     1.8   Nondeductible expenses     1,300       ( 13.7 )     584       7.3       1,462       ( 3.7 ) Company-owned life insurance     ( 731 )     7.7       ( 591 )     ( 7.4 )     ( 870 )     2.2   Stock-based compensation     ( 660 )     6.9       502       6.3       —       —   Changes in uncertain tax positions     —       —       ( 1,662 )     ( 20.8 )     ( 923 )     2.3   Valuation allowance     —       —       3,550       44.4       —       —   Purchase price accounting     —       —       —       —       ( 1,308 )     3.3   Provision to return adjustments     702       ( 7.4 )     ( 1,456 )     ( 18.2 )     ( 640 )     1.6   Other     ( 6 )     0.1       21       ( 1.9 )     ( 45 )     ( 0.1 ) Total   $ ( 1,237 )     13.0 %   $ 9,927       121.9 %   $ ( 12,288 )     30.5 % Provision for (benefit from) income taxes of $ 21.0 million, ($ 10.2 ) million and ($ 8.1 ) million were allocated to discontinued operations for the years ended December 31, 2021, 2020 and 2019, respectively. The effective tax rates for discontinued operations were 66.2 %, 5.8 % and 21.9 % for the years ended December 31, 2021, 2020 and 2019, respectively. The majority of the variance from the statutory tax rate in 2021 is due to the net deferred tax liability on basis differences on held for sale entities recorded in 2021 and the majority of the variance from the statutory tax rate in 2020 is due to the goodwill impairment and the investment in affiliates impairment recorded in 2020. F- 29 Table of Contents   GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED The following is a summary of the deferred tax assets and liabilities (in thousands): December 31,   2021     2020   Long-term deferred tax assets:                 Receivables   $ 3,173     $ 3,044   Insurance     14,334       12,654   Deferred compensation     11,133       11,187   Accrued compensation     3,792       9,721   Other accrued liabilities     1,088       1,283   Contract income recognition     11,453       15,638   Lease liabilities     16,351       16,342   Net operating loss carryforwards     59,760       52,181   Valuation allowance     ( 26,533 )     ( 29,547 ) Other     8,440       10,531   Total long-term deferred tax assets     102,991       103,034   Long-term deferred tax liabilities:                 Property and equipment     64,915       46,153   Right of use assets     15,791       15,792   Total long-term deferred tax liabilities     80,706       61,945   Net long-term deferred tax assets   $ 22,285     $ 41,089   The following is a summary of the net operating loss carryforwards at December 31,   2021  (in thousands):     Expiration     Gross Carryforward     Tax Effected Carryforward   Federal net operating loss carryforwards     2032 - 2035     $ 65,395     $ 13,733   Federal net operating loss carryforwards     N/A       110,139       23,129   State net operating loss carryforwards     2022 - 2041       230,164       11,708   Foreign tax loss carryforwards     2022 - 2041       41,992       11,190   Total net operating loss carryforwards at December 31, 2021     $ 59,760   The federal, state and foreign net operating loss carryforwards above included unrecognized tax benefits taken in prior years and the net operating loss carryforward deferred tax asset is presented net of these unrecognized tax benefits in accordance with ASC Topic 740, Income Taxes . The federal and state net operating loss acquired during the Layne acquisition are subject to Internal Revenue Code Section 382 limitations and may be limited in future periods and a portion may expire unused. As we expect to use the federal net operating loss carryforwards prior to expiration we believe that is more likely than not that these deferred tax assets will be realized and no valuation allowance was deemed necessary. We have provided a valuation allowance on the net operating loss deferred tax asset or the net deferred tax assets for certain foreign, state and local jurisdictions because we do not believe it is more likely than not that they will be realized. The following is a summary of the change in valuation allowance (in thousands): December 31,   2021     2020   Beginning balance   $ 29,547     $ 25,271   Additions (deductions), net     ( 3,014 )     4,276   Ending balance   $ 26,533     $ 29,547   The deduction to the valuation allowance is mainly due to the revaluation of our net deferred tax assets related to various state and local jurisdictions which is partially offset by additions to the valuation allowance that are insignificant for the year ended December 31, 2021. F- 30 Table of Contents   GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUE D Uncertain tax positions: We file income tax returns in the U.S. and various state and local jurisdictions. We are currently under examination by various state taxing authorities for various tax years. We do not anticipate that any of these audits will result in a material change in our financial position. We are no longer subject to U.S. federal examinations by tax authorities for years before 2013. With few exceptions, as of December 31, 2021, we are no longer subject to state examinations by taxing authorities for years before 2012. We file income tax returns in foreign jurisdictions where we operate. The returns are subject to examination which may be ongoing at any point in time and tax liabilities are recorded based on estimates of additional taxes which will be due upon settlement of those examinations. The tax years subject to examination by foreign tax authorities vary by jurisdiction, but generally we are no longer subject to examinations by taxing authorities for years before 2014. We had approximately $ 22.7 million of total gross unrecognized tax benefits as of both December  31, 2021 and 2020. There were approximately $ 5.4 million of unrecognized tax benefits that would affect the effective tax rate in any future period at both December  31, 2021 and 2020. It is reasonably possible that our unrecognized tax benefit could decrease by approximately $ 1.8 million in 2022, of which $ 1.6 million would impact our effective tax rate in 2022. The decrease relates to anticipated statute expirations and anticipated resolution of outstanding unrecognized tax benefits. The following is a tabular reconciliation of unrecognized tax benefits (in thousands) the balance of which is included in other long-term liabilities and accrued expenses and other current liabilities in the consolidated balance sheets: December 31,   2021     2020     2019   Beginning balance   $ 22,728     $ 24,406     $ 19,348   Gross increases - acquisitions     —       —       5,812   Gross increases – current period tax positions     —       —       —   Gross decreases – current period tax positions     —       —       —   Gross increases – prior period tax positions     —       22       169   Gross decreases – prior period tax positions     —       —       ( 7 ) Settlements with taxing authorities/lapse of statute of limitations     ( 4 )     ( 1,700 )     ( 916 ) Ending balance   $ 22,724     $ 22,728     $ 24,406   We record interest on uncertain tax positions in interest expense and penalties in other income, net in our consolidated statements of operations. During the years ended December  31, 2021, 2020 and 2019, we recognized approximately $ 0.4 million interest and penalty expense, $ 0.5 million interest and penalty income and $ 0.3 million interest and penalty expense, respectively. Approximately $ 6.1 million and $ 5.8  million of accrued interest and penalties related to our uncertain tax position liability was included in other long-term liabilities and accrued expenses and other current liabilities in our consolidated balance sheets at December  31, 2021 and 2020, respectively. F- 31 Table of Contents   GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED   20. Contingencies - Legal Proceedings  Liabilities relating to legal proceedings and government inquiries, to the extent that we have concluded such liabilities are probable and the amounts of such liabilities are reasonably estimable, are recorded in the consolidated balance sheets. It is possible that future developments in our legal proceedings and inquiries could require us to (i) adjust or reverse existing accruals, or (ii) record new accruals that we did  not  originally believe to be probable or that could  not  be reasonably estimated. Such changes could be material to our financial condition, results of operations and/or cash flows in any particular reporting period. In addition, disclosure is required when a material loss is probable but  not  reasonably estimable, a material loss is reasonably possible but  not  probable, or when it is reasonably possible that the amount of a loss will exceed the amount recorded. The total liabilities recorded as of  December 31, 2021  were $ 129.0  million, $ 63 million of which was paid through insurance proceeds, which have been fully funded into a settlement escrow account. The balance of the settlement escrow account is included in other current assets in the consolidated balance sheets. As of  December 31,  2020, total liabilities were immaterial. The total range of possible loss related to (i) matters considered reasonably possible, and (ii) reasonably possible amounts in excess of accrued losses recorded for probable loss contingencies, including those related to liquidated damages, could have a material impact on our consolidated financial statements if they become probable and the reasonably estimable amount is determined. Ordinary Course Legal Proceedings In the ordinary course of business, we and our affiliates are involved in various legal proceedings alleging, among other things, liability issues or breach of contract or tortious conduct in connection with the performance of services and/or materials provided, the various outcomes of which often cannot be predicted with certainty. For information on our accounting policies regarding affirmative claims and back charges that we are party to in the ordinary course of business, see Note  1.  We and our affiliates are also subject to government inquiries in the ordinary course of business seeking information concerning our compliance with government construction contracting requirements and various laws and regulations, the outcomes which often cannot be predicted with certainty. Some of the matters in which we or our joint ventures and affiliates are involved  may  involve compensatory, punitive, or other claims or sanctions that, if granted, could require us to pay damages or make other expenditures in amounts that are  not  probable to be incurred or cannot currently be reasonably estimated. In addition, in some circumstances our government contracts could be terminated, we could be suspended, debarred or incur other administrative penalties or sanctions, or payment of our costs could be disallowed. While any of our pending legal proceedings  may  be subject to early resolution as a result of our ongoing efforts to resolve the proceedings, whether or when any legal proceeding will be resolved is neither predictable nor guaranteed. Securities Litigation and Derivative Lawsuits On  August 13, 2019,  a securities class action was filed in the United States District Court for the Northern District of California against the Company, James H. Roberts, our former President and Chief Executive Officer, and Jigisha Desai, our former Senior Vice President and Chief Financial Officer and Executive Vice President and Chief Strategy Officer. An amended complaint was filed on  February 20, 2020  that, among other things, added Laurel Krzeminski, our former Chief Financial Officer, as a defendant. The amended complaint is brought on behalf of an alleged class of persons or entities that acquired our common stock between  April 30, 2018  and  October 24, 2019,  and alleges claims arising under Sections  10 (b) and  20 (a) of the Securities Exchange Act of  1934  and Rule  10b - 5  thereunder. After the filing of the amended complaint, this case was re-titled  Police Retirement System of St. Louis v. Granite Construction Incorporated, et. al . The amended complaint seeks damages based on allegations that the defendants made false and/or misleading statements and failed to disclose material adverse facts in the Company’s SEC filings about its business, operations and prospects. On  May 20, 2020,  the court denied, in part, our motion to dismiss the amended complaint. On  January 21, 2021,  the court granted plaintiff’s motion for class certification.  On  October 23, 2019,  a putative class action lawsuit, titled  Nasseri v. Granite Construction Incorporated, et. al. , was filed in the Superior Court of California, County of Santa Cruz against the Company, James H. Roberts, our former President and Chief Executive Officer, Laurel Krzeminski, our former Chief Financial Officer, and the then-serving Board of Directors on behalf of persons who acquired shares of Company common stock in the Company’s  June 2018  merger with Layne. The complaint asserts causes of action under the Securities Act of  1933  and alleges that the registration statement and prospectus were negligently prepared and included materially false and misleading statements and failed to disclose facts required to be disclosed and seeks monetary damages based on these allegations. On  August 10, 2020,  the court sustained our demurrer dismissing the complaint with leave to amend. On  September 16, 2020,  the plaintiff filed an amended complaint. We filed a demurrer seeking to dismiss the amended complaint. On  April 9, 2021,  the court entered an order overruling our demurrer seeking to dismiss the amended complaint. On  May 14, 2021,  the plaintiff filed a motion for class certification. The hearing on the motion has been continued to  March 25, 2022  in light of the settlement proceedings in  Police Retirement System of St. Louis v. Granite Construction Incorporated, et al .  On  April 29, 2021,  we entered into a stipulation of settlement (the “Settlement Agreement”) to settle  Police Retirement System of St. Louis v. Granite Construction Incorporated, et al . The Settlement Agreement also settles claims alleged in  Nasseri v. Granite Construction Incorporated, et al . The settlement is subject to final court approval. Under the Settlement Agreement, the Company agreed to pay or cause to be paid a total of $ 129.0  million in cash to a settlement fund that will be used to pay all settlement fees and expenses, attorneys’ fees and expenses, and cash payments to members of the settlement class. The settlement class has agreed to release us, the other defendants named in the lawsuits and certain of their respective related parties from any and all claims, rights, causes of action, liabilities, actions, suits, damages or demands of any kind whatsoever, that relate in any way to the purchase, acquisition, holding, sale or disposition of our common stock during the period between  February 17, 2017  and  October 24, 2019  that arose out of or are based upon or related to the facts alleged or the claims or allegations set forth in  Police Retirement System of St. Louis v. Granite Construction Incorporated, et al.  or relate in any way to any alleged violation of the Securities Act of  1933,  the Securities Exchange Act of  1934,  or any other state, federal or foreign jurisdiction’s securities or other laws, any alleged misstatement, omission or disclosure (including in financial statements) or other alleged securities-related wrongdoing or misconduct, including all claims alleged in  Nasseri v. Granite Construction Incorporated, et al . The Settlement Agreement contains  no  admission of liability, wrongdoing or responsibility by any of the parties. On  April 30, 2021,  the class representative in  Police Retirement System of St. Louis v. Granite Construction Incorporated, et al.  filed a motion for preliminary approval of the settlement. The plaintiff in  Nasseri v. Granite Construction Incorporated, et al.  was permitted to intervene, although the court denied his application to be appointed as additional lead plaintiff. On  October 6, 2021,  the court issued an order granting preliminary approval of the settlement. Pursuant to the terms of the Settlement Agreement, $ 129  million was paid to the settlement fund after preliminary approval in  October 2021. $ 66  million was paid by the Company and $ 63  million was paid through insurance proceeds into an escrow account. The total $ 129  million is included in the balance sheet as deposits and an accrued liability. Members of the settlement class had the opportunity to object to the settlement at a fairness hearing held by the court to determine whether the settlement should be finally approved and whether the proposed order and final judgment should be entered. The fairness hearing occurred on February 24, 2022 and the court took the motion for final approval of the settlement under submission. If the court approves the settlement, including the payment and release described above, and enters such order and final judgment, and such judgment is  no  longer subject to further appeal or other review, the settlement fund will be disbursed in accordance with a plan of allocation approved by the court. As a result of entering into the Settlement Agreement, we recorded a pre-tax charge of approximately $ 66  million in the quarter ended  March 31, 2021. On  May 6, 2020,  a stockholder derivative lawsuit, titled  English v. Roberts, et al. , was filed in the United States District Court for the Northern District of California against James H. Roberts, our former President and Chief Executive Officer, Jigisha Desai, our former Senior Vice President and Chief Financial Officer and Executive Vice President and Chief Strategy Officer, Laurel Krzeminski, our former Chief Financial Officer, and our then-current Board of Directors, and the Company, as a nominal defendant, asserting claims for breach of fiduciary duty, unjust enrichment, and violations of the Securities Exchange Act of  1934  that allegedly occurred between  April 30, 2018  and  October 24, 2019.  The lawsuit alleges that the individual defendants each knowingly inflated the Company’s revenue, income, and margins in violation of U.S. GAAP, which caused the results during the relevant periods to be materially false and misleading. The complaint seeks monetary damages and corporate governance reforms. The court has ordered that the lawsuit in the derivative action be stayed until further order of the court or until entry of a final judgment in the putative securities class action lawsuit filed in the United States District Court for the Northern District of California. On  May 12, 2021,  a stockholder derivative lawsuit, titled  Davydov v. Roberts, et al. , was filed in the Delaware Court of Chancery against James H. Roberts, Jigisha Desai, Laurel Krzeminski, Craig Hall, our Senior Vice President, General Counsel, Corporate Compliance Officer, and Secretary, and our then-current Board of Directors, and the Company, as a nominal defendant, asserting claims for breach of fiduciary duty, unjust enrichment, and aiding and abetting breach of fiduciary duty that allegedly occurred between  April 30, 2018  and  October 24, 2019.  The lawsuit alleges that the individual defendants each knowingly inflated the Company’s revenue, income, and margins in violation of U.S. GAAP, which caused the results during the relevant periods to be materially false and misleading. The complaint seeks monetary damages and corporate governance reforms. On  July 16, 2021,  we filed a motion to dismiss the complaint. We are in the preliminary stages of the litigation and, as a result, we cannot predict the outcome or consequences of these cases. As of  December  31,   2021,  other than the Settlement Agreement charge described above, we did  not  record any liability related to the above matters because we concluded such liabilities were  not  probable and the amounts of such liabilities were  not  reasonably estimable. Other Matters In connection with our prior disclosure of the Audit/Compliance Committee’s independent investigation of prior-period reporting for the former Heavy Civil operating group and the extent to which those matters affected the effectiveness of the Company’s internal control over financial reporting (the “Investigation”), we voluntarily contacted the San Francisco office of the SEC Division of Enforcement regarding the Investigation. The SEC has issued subpoenas for documents in connection with the accounting issues identified in the Investigation. We have produced documents to the SEC and will continue to cooperate with the SEC in its investigation. Our wholly-owned subsidiary, Layne, was a subcontractor on the foundation for the Salesforce Tower office building in San Francisco in  2013  and  2014.  Certain anomalies were discovered in  March 2014  in the foundation’s structural concrete, which were remediated by the general contractor during  2015.  Layne assigned any insurance claims it  may  have had under the project’s builder’s risk insurance policy to the general contractor. During  2014,  the project owner and the general contractor submitted a claim to the project’s builder’s risk insurers to cover the cost of remedial work and related damages. The claim was denied by the builder’s risk insurers. The project owner and the general contractor subsequently filed a legal proceeding against the insurers seeking coverage under the builder’s risk insurance policy, which proceeding was then transferred by agreement to arbitration. On July 20, 2021, we were informed of an arbitration award denying insurance coverage for claims related to the remedial measures undertaken by the general contractor of the Salesforce Tower and related damages. Although we were  not  a party to this legal proceeding, we believe, based on court filings and developments in the arbitration, that the project owner and the general contractor asserted a claim for damages against the project’s builder’s risk insurers for an amount in excess of $ 100  million. On February 3, 2022, a lawsuit titled Steadfast Insurance Company ( “ Steadfast ” ), a subrogee of Clark/Hathaway Dinwiddie, a Joint Venture ( “ CHDJV ” ) v. Layne Christensen Company ( “ Layne ” ) , was filed in the Superior Court of the State of California, County of San Francisco, seeking damages of approximately $ 70 million for costs incurred by Steadfast on behalf of CHDJV to cure Layne’s allegedly defective work on the foundation of the Salesforce Tower.  On February 4, 2022, CHDJV submitted an arbitration demand with the American Arbitration Association against Granite Construction Incorporated seeking to recover approximately $ 30 million for costs incurred by CHDJV to cure Layne’s allegedly defective work on the foundation of the Salesforce Tower.  We believe Granite and Layne have multiple defenses and Layne has counterclaims to the claims at issue.  Both companies intend to vigorously defend against the claims, and Layne intends to prosecute its counterclaims, but, we cannot provide assurance that Granite and Layne will be successful in these efforts. We do  not  believe it is probable this matter will result in a material loss, however if we are unsuccessful we believe the range of reasonably possible loss upon final resolution of this matter could be up to approximately $ 100 million. F- 32 Table of Contents   GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED   21. Reportable Segment Information As discussed in Note 1, our reportable segments for continuing operations are: Construction and Materials. The Construction segment focuses on construction and rehabilitation of roads, pavement preservation, bridges, rail lines, airports, marine ports, dams, reservoirs, aqueducts, infrastructure and site development for use by the general public and water-related construction for municipal agencies, commercial water suppliers, industrial facilities and energy companies. It also provides construction of various complex projects including infrastructure / site development, mining, public safety, tunnel, solar and other  power-related projects. The Materials segment focuses on production of aggregates and asphalt production for internal use and for sale to third parties. The accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies (see Note 1 ). We evaluate segment performance based on gross profit, and do not include selling, general and administrative expenses or non-operating income or expense. Segment assets include property and equipment, intangibles, goodwill, inventory and equity in construction joint ventures. Summarized segment information for our continuing operations is as follows (in thousands): Years Ended December 31,   Construction     Materials     Total   2021                         Total revenue from reportable segments   $ 2,602,306     $ 552,548     $ 3,154,854   Elimination of intersegment revenue     —       ( 144,801 )     ( 144,801 ) Revenue from external customers   $ 2,602,306     $ 407,747     $ 3,010,053   Gross profit   $ 248,350     $ 57,206     $ 305,556   Depreciation, depletion and amortization   $ 32,691     $ 24,905     $ 57,596   Segment assets   $ 358,561     $ 333,089     $ 691,650   2020                         Total revenue from reportable segments   $ 2,764,094     $ 513,546     $ 3,277,640   Elimination of intersegment revenue     —       ( 148,761 )     ( 148,761 ) Revenue from external customers   $ 2,764,094     $ 364,785     $ 3,128,879   Gross profit   $ 241,444     $ 63,209     $ 304,653   Depreciation, depletion and amortization   $ 33,155     $ 21,198     $ 54,353   Segment assets   $ 371,479     $ 316,164     $ 687,643   2019                         Total revenue from reportable segments   $ 2,575,791     $ 490,098     $ 3,065,889   Elimination of intersegment revenue     —       ( 151,012 )     ( 151,012 ) Revenue from external customers   $ 2,575,791     $ 339,086     $ 2,914,877   Gross profit   $ 146,472     $ 43,313     $ 189,785   Depreciation, depletion and amortization   $ 32,857     $ 22,292     $ 55,149   A reconciliation of segment gross profit from continuing operations to consolidated income (loss) from continuing operations before provision for (benefit from) income taxes is as follows (in thousands): Years Ended December 31,     2021       2020       2019   Total gross profit from continuing operations   $ 305,556     $ 304,653     $ 189,785   Selling, general and administrative expenses     243,083       252,879       238,147   Other costs (see Note 1)     95,155       36,964       6,735   Gain on sales of property and equipment (see Note 11)     ( 33,781 )     ( 4,925 )     ( 13,373 ) Total other expense (income), net     10,595       11,590       ( 1,500 ) Income (loss) from continuing operations before provision for (benefit from) income taxes   $ ( 9,496 )   $ 8,145     $ ( 40,224 ) A reconciliation of segment assets to consolidated total assets is as follows (in thousands): December 31,   2021     2020   Total assets for reportable segments   $ 691,650     $ 687,643   Assets not allocated to segments:                 Cash and cash equivalents     395,647       425,292   Receivables, net     464,588       437,558   Other current assets, excluding segment assets     323,051       170,006   Current assets held-for-sale     392,641       171,263   Property and equipment, net, excluding segment assets     56,658       48,941   Long-term marketable securities     15,600       5,200   Investments in affiliates     23,368       27,637   Right of use assets     49,312       52,987   Deferred income taxes, net     24,141       43,111   Other noncurrent assets, excluding segment assets     58,271       58,254   Noncurrent assets held for sale     —       252,104   Consolidated total assets   $ 2,494,927     $ 2,379,996     F- 33 Table of Contents   The following table sets forth selected unaudited quarterly financial information for the years ended December 31, 2021 and 2020.   The following unaudited quarterly financial information has been adjusted retrospectively to give effect to the discontinued operations and assets held-for-sale reclassification. See Note 2 for more information regarding discontinued operations and assets held-for-sale . This information has been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, contains all adjustments necessary for a fair statement thereof. Net income (loss) per share calculations are based on the weighted average common shares outstanding for each period presented. Accordingly, the sum of the quarterly net income (loss) per share amounts may not equal the per share amount reported for the year. QUARTERLY FINANCIAL DATA                                 (unaudited - dollars in thousands, except per share data)                                 2021 Quarters Ended   December 31,     September 30,     June 30,     March 31,   Revenue   $ 683,196     $ 925,854     $ 834,671     $ 566,332   Gross profit   $ 51,652     $ 101,960     $ 98,232     $ 53,712   As a percent of revenue     7.6 %     11.0 %     11.8 %     9.5 % Net income (loss) from continuing operations   $ ( 406 )   $ 28,403     $ 26,145     $ ( 62,401 ) Net income (loss) from discontinued operations   $ ( 20,027 )   $ 4,020     $ 29,602     $ ( 2,922 ) Net income (loss)   $ ( 20,433 )   $ 32,423     $ 55,747     $ ( 65,323 ) Net income (loss) attributable to Granite from continuing operations   $ 6,814     $ 31,023     $ 24,859     $ ( 63,273 ) Net income (loss) attributable to Granite   $ ( 13,213 )   $ 35,043     $ 54,461     $ ( 66,195 )                                   Per share data:                                 Basic                                 Continuing operations   $ 0.15     $ 0.68     $ 0.54     $ ( 1.38 ) Discontinued operations     ( 0.44 )     0.08       0.65       ( 0.07 ) Net income (loss) per share   $ ( 0.29 )   $ 0.76     $ 1.19     $ ( 1.45 ) Diluted                                 Continuing operations   $ 0.14     $ 0.65     $ 0.52     $ ( 1.38 ) Discontinued operations     ( 0.42 )     0.08       0.62       ( 0.07 ) Net income (loss) per share   $ ( 0.28 )   $ 0.73     $ 1.14     $ ( 1.45 )   2020 Quarters Ended   December 31,     September 30,     June 30,     March 31,   Revenue   $ 830,390     $ 955,761     $ 811,866     $ 530,862   Gross profit   $ 93,319     $ 113,015     $ 81,048     $ 17,271   As a percent of revenue     11.2 %     11.8 %     10.0 %     3.3 % Net income (loss) from continuing operations   $ 2,513     $ 32,665     $ 3,645     $ ( 40,605 ) Net income (loss) from discontinued operations   $ 3,174     $ ( 131,022 )   $ ( 4,618 )   $ ( 31,933 ) Net income (loss)   $ 5,687     $ ( 98,357 )   $ ( 973 )   $ ( 72,538 ) Net income (loss) attributable to Granite from continuing operations   $ 4,836     $ 39,860     $ 8,023     $ ( 33,437 ) Net income (loss) attributable to Granite   $ 8,010     $ ( 91,162 )   $ 3,405     $ ( 65,370 )                                   Per share data:                                 Basic                                 Continuing operations   $ 0.11     $ 0.87     $ 0.18     $ ( 0.73 ) Discontinued operations     0.07       ( 2.87 )     ( 0.11 )     ( 0.71 ) Net income (loss) per share   $ 0.18     $ ( 2.00 )   $ 0.07     $ ( 1.44 ) Diluted                                 Continuing operations   $ 0.10     $ 0.86     $ 0.17     $ ( 0.73 ) Discontinued operations     0.07       ( 2.83 )     ( 0.10 )     ( 0.71 ) Net income (loss) per share   $ 0.17     $ ( 1.97 )   $ 0.07     $ ( 1.44 )   F-34